[Federal Register Volume 88, Number 137 (Wednesday, July 19, 2023)]
[Notices]
[Pages 46221-46232]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-15257]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97888; File No. SR-LCH SA-2023-005]


Self-Regulatory Organizations; LCH SA; Notice of Filing of 
Proposed Rule Change Relating to Portfolio Margining

July 13, 2023.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on June 29, 2023, Banque Centrale de Compensation, which conducts 
business under the name LCH SA (``LCH SA''), filed with the Securities 
and Exchange Commission (``Commission'') the proposed rule change 
(``Proposed Rule Change'') described in Items I, II and III below, 
which Items have been prepared primarily by LCH SA. The Commission is 
publishing this notice to solicit comments on the Proposed Rule Change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    LCH SA is proposing to amend its FCM/BD CDS Clearing Regulations 
(``Regulations'') and certain provisions of its CDS Clearing Rule Book 
(``Rule Book'') to implement a portfolio margining program 
(``Program''), pursuant to which FCM/BD Clearing Members may offer FCM/
BD Clients the opportunity to portfolio margin FCM/BD Cleared 
Transactions that are security-based swaps (``SBS'') with FCM/BD 
Cleared Transactions that are Cleared Swaps in the participating FCM/BD 
Clearing Member's FCM/BD Swaps Client Account Structure. LCH SA is also 
proposing to amend certain provisions of its Rule Book and its CDS 
Clearing Procedures (``Procedures'') \3\ regarding permitted Collateral 
(including Eligible Collateral and Eligible Currency), the Client 
Collateral Buffer, and the release of Collateral to a Clearing Member. 
In addition, LCH SA is making other miscellaneous amendments to its 
Rule Book, Procedures and CDS Clearing Supplement and will adopt a new 
Clearing Notice. Further, LCH SA is also making a number of amendments 
to its Liquidity Risk Modelling Framework (``Framework'') \4\ to take 
into account the segregation requirements and investment restrictions 
applicable to FCMs' customer funds. (collectively, the ``Proposed Rule 
Change'').\5\
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    \3\ The version of the Rule Book and Section 3 of the Procedures 
which includes the Proposed Rule Change reflects a separate proposed 
rule change previously submitted to the Securities and Exchange 
Commission (SEC) under the Filing No. SR-LCH SA-2023-004'' which is 
still subject to SEC's approval.
    \4\ The amendments are to the version of the Framework that has 
been submitted to SEC for approval under the Filing No SR-LCH SA-
2023-003, which conforms the Framework to the common template 
adopted by the London Stock Exchange Group (``LSEG'') for use by 
each of its affiliates.
    \5\ Capitalized terms not defined herein are defined in LCH SA's 
Rule Book, available at http://www.lch.com/rules-regulations/rulebooks/sa.
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    The text of the Proposed Rule Change has been annexed as Exhibit 5 
to file number SR-LCH SA-2023-005.\6\
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    \6\ All capitalized terms not defined herein have the same 
definition as in the Rule Book or Procedures, as applicable.
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    The implementation of the Proposed Rule Change will be contingent 
on LCH SA's receipt of all necessary regulatory approvals, including 
the approval by the Commission of the Proposed Rule Change described 
herein.

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, LCH SA included statements 
concerning the purpose of and basis for the Proposed Rule Change and 
discussed any comments it received on the Proposed Rule Change. The 
text of these statements may be examined at the places specified in 
Item IV below. LCH SA has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of such statements.

A. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

1. Purpose
    In separate orders issued in November, 2021, the SEC and the 
Commodity Futures Trading Commission (``CFTC'' and collectively with 
the SEC, the ``Agencies'') set out the terms and conditions pursuant to 
which LCH SA's FCM/BD Clearing Members may elect to offer their FCM/BD 
Clients the opportunity to portfolio margin FCM/BD Cleared Transactions 
that are SBS with FCM/BD Cleared Transactions that are Cleared Swaps in 
the participating FCM/BD Clearing Member's FCM/BD Swaps Client Account 
Structure. The Proposed Rule Change is being adopted, in part, to 
implement this Program. In addition, the Proposed Rule Change will 
amend certain provisions of its Rule Book and its Procedures regarding 
permitted Collateral, the Client Collateral Buffer, and the release of 
Collateral to a Clearing Member. The Proposed Rule Change will also 
make other miscellaneous amendments to LCH SA's Rule Book and 
Procedures. Finally, the Proposed Rule Change will also update the 
Liquidity Risk Modelling Framework with respect to the liquidity 
resources and requirements applicable to FCM/BD Clearing Members.
a. Portfolio Margining Program
    The rules establishing the Program will be set out primarily in a 
new Regulation 7 in LCH SA's FCM/BD Clearing Regulations 
(``Regulations''), which are designed to ensure that the Program 
complies with the terms and conditions set out in the SEC Portfolio 
Margining Order \7\ and the CFTC Portfolio Margining Order.\8\
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    \7\ The Definitions section of the Regulations will be amended 
to define the ``SEC Portfolio Margining Order'' to mean ``Exchange 
Act Release 34-93501 (Order Granting Conditional Exemptions Under 
the Securities Exchange Act of 1934 in Connection With the Portfolio 
Margining of Cleared Swaps and Security-Based Swaps That Are Credit 
Default Swaps'', 86 FR 61357 (November 5, 2021)). This Order applies 
to all SEC-registered clearing agencies and all SEC-registered 
broker-dealers.
    \8\ The Definitions section of the Regulations will be amended 
to define the ``CFTC Portfolio Margining Order'' to mean the 
``Treatment of Funds Held in Connection with Clearing by LCH SA of 
Single-Name Credit Default Swaps, Including Spun-Out Component 
Transactions'' issued on November 1, 2021. This Order applies solely 
to LCH SA and its FCM/BD Clearing Members.
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     Section 7(a) of the Regulations, In General, will define 
the ``Portfolio Margining Program'' as the program by which LCH SA is 
authorized, pursuant to the SEC Portfolio Margining Order and the CFTC 
Portfolio Margining Order, to offer FCM/BD Clearing Members, on behalf 
of their FCM/BD Clients, the ability to elect to portfolio margin FCM/
BD Cleared Transactions that are SBS with FCM/BD Cleared Transactions 
that are Cleared Swaps.\9\
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    \9\ The Definitions section of the Regulations will be amended 
to define the ``Portfolio Margining Program'' by making a direct 
reference to Regulation 7(a) in the Regulations.
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     Section 7(b) of the Regulations, Participation, will 
provide that FCM/BD Clearing Members may participate in

[[Page 46222]]

the Program by providing LCH SA such materials that LCH SA may require 
from time to time, including in respect of its FCM/BD Clients. This 
section also provides that, in providing these materials to LCH SA, the 
FCM/BD Clearing Member shall be deemed to represent that: (a) it is 
both an FCM and a BD and neither such status has been revoked; (b) it 
is in compliance with the applicable requirements of the SEC Portfolio 
Margining Order and the CFTC Portfolio Margining Order; and (c) each 
relevant FCM/BD Client is an ``eligible contract participant'' as 
defined in Section 1a(18) of the Commodity Exchange Act.\10\
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    \10\ This section further provides that, if LCH SA determines 
that an FCM/BD Clearing Member may participate in the Portfolio 
Margining Program on behalf of its FCM Client(s), it will advise the 
FCM/BD Clearing Member when such participation shall begin, which 
date is defined as the ``Portfolio Margining Start Date''.
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     Section 7(c) of the Regulations, Operation, will provide 
that, following the Portfolio Margining Start Date, all FCM/BD Cleared 
Transactions that are SBS for the relevant FCM/BD Client will be 
treated as FCM/BD Portfolio Margining Transactions \11\ and will be 
held (along with any associated Collateral) in the FCM/BD Swaps Client 
Account Structure on a commingled basis with FCM/BD Cleared 
Transactions that are Cleared Swaps for such FCM/BD Client. Further, 
all such FCM/BD Portfolio Margining Transactions will constitute 
Cleared Swaps for purposes of the CDS Clearing Rules and the resulting 
combined positions will be margined on a portfolio basis in respect of 
the relevant FCM/BD Client. Finally, this section will provide that the 
relevant FCM/BD Client will be deemed to acknowledge and agree that any 
property used to margin, guarantee or secure the FCM/BD Portfolio 
Margining Transactions will not receive customer protection treatment 
under the Securities Exchange Act (``Act'') or SIPA \12\ and will 
instead receive customer protection treatment under the commodity 
broker liquidation provisions of the Code \13\ and the rules and 
regulations promulgated thereunder.\14\
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    \11\ The Definitions section of the Regulations will be amended 
to define an ``FCM/BD Portfolio Margining Transaction'' to mean an 
``FCM/BD Cleared Transaction that is an SBS and which is held in the 
FCM/BD Swaps Client Account Structure pursuant to the Portfolio 
Margining Program.
    \12\ The Definitions section of the Regulations defines SIPA to 
mean U.S. Securities Investor Protection Act of 1970, as amended.
    \13\ The Definitions section of the Regulations defines the Code 
to mean U.S. Bankruptcy Code, as amended.
    \14\ The purpose of this provision is to cause the FCM/BD 
Clearing Member to acknowledge that it has complied with the SEC 
Portfolio Margining Order, which, inter alia, requires the FCM/BD to 
furnish to the FCM/BD Client a disclosure document containing the 
following information: (i) a statement indicating that the FCM/BD's 
money, securities, and property will be held in an account 
maintained in accordance with the segregation requirements of 
Section 4d(f) of the Commodity Exchange Act and that the FCM/BD 
Client has elected to seek protections under Subchapter IV of 
Chapter 7 of Title 11 of the United States Code and the rules and 
regulations thereunder with respect to such money, securities, and 
property; and (ii) a statement that the broker-dealer segregation 
requirements of Section 15(c)(3) and Section 3E of the Exchange Act 
and the rules thereunder, and any customer protections under SIPA 
and the stockbroker liquidation provisions, will not apply to such 
FCM/BD Client.
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    In addition to new Regulation 7, certain conforming changes will 
also be made to other sections of the Regulations. In particular, in 
the Definitions section of the Regulations, the definition of the LCH 
Cleared Swaps Client Segregated Depository Account will be amended to 
make clear that the account includes, where relevant, FCM/BD Portfolio 
Margining Transactions. Similarly, the definition of the LCH SBS Client 
Segregated Depository Account will be amended to make clear that the 
account excludes any FCM/BD Portfolio Margining Transactions. \15\ 
Equivalent changes will be made to the relevant provisions of the Rule 
Book and Section 3 of the Procedures by adding a reference to the new 
defined term of ``FCM/BD Portfolio Margining Transaction'', where 
needed.
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    \15\ Specifically, an LCH SBS Client Segregated Depository 
Account will be defined in the Regulations to mean one or more 
accounts at one or more Banks which are commingled for purposes of 
the applicable provisions of the Exchange Act and SEC Regulations) 
maintained by LCH SA for the benefit of SBS Customers of its FCM/BD 
Clearing Members with a Bank, which is segregated in accordance with 
the Exchange Act and SEC Regulations and contains Collateral 
deposited by such FCM/BD Clearing Members on behalf of their SBS 
Customers in connection with FCM/BD Cleared Transactions that are 
SBS cleared for such SBS Customers by such FCM/BD Clearing Members, 
excluding any FCM/BD Portfolio Margining Transactions.
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    Further, Article 6.2.1.1 (iii) of the Rule Book will be deleted. 
Article 6.2.1.1(iii) establishes the terms and conditions pursuant to 
which, prior to the compliance date for the final capital, margin, and 
segregation requirements for security-based swap dealers and the 
adoption of the SEC Portfolio Margining Order, an FCM/BD Clearing 
Member that is both an FCM and a BD was authorized to clear and hold 
FCM/BD Cleared Transactions that are SBS for FCM/BD Clients in the FCM/
BD Swaps Client Account Structure on a commingled basis with Cleared 
Swaps.\16\ With the implementation of the more comprehensive Portfolio 
Margining Program set out in Section 7 of the Regulations, Article 
6.2.1.1 is unnecessary.
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    \16\ See, Order Granting Conditional Exemptions under the 
Securities Exchange Act of 1934 in Connection with Portfolio 
Margining of Swaps and Security-based Swaps, Exchange Act Release 
No. 68433 (Dec. 12, 2012) 77 FR 75211 (Dec. 19, 2012).
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    In addition, because LCH SA expects that all FCM/BD Clients will 
elect to portfolio margin all of their SBS transactions rather than 
maintain a separate FCM/BD SBS Client Segregated Depository 
Account,\17\ Regulation 2(a) will be amended to provide that an FCM/BD 
Clearing Member will maintain an FCM/BD SBS Client Segregated 
Depository Account only if required,\18\ and Regulation 2(b) will be 
amended to provide that LCH SA will establish an LCH SBS Client 
Segregated Depository Account \19\ for an FCM/BD Clearing Member only 
upon request. Finally, Regulation 2(c) will be amended to confirm that 
all Collateral deposited with LCH SA by FCM/BD Clearing Members in 
connection with Cleared Swaps will include Collateral deposited in 
connection with FCM/BD Portfolio Margining Transactions and will be 
held in an LCH Cleared Swaps Segregated Depository Account.
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    \17\ The Regulations define an FCM/BD SBS Client Segregated 
Depository Account to mean an omnibus account (which will consist of 
one or more accounts at one or more Banks which are commingled for 
purposes of the applicable provisions of the Exchange Act and SEC 
Regulations) maintained by an FCM/BD Clearing Member for its SBS 
Customers with a Bank, which is segregated in accordance with the 
Exchange Act and SEC Regulations and contains Collateral deposited 
by such SBS Customers in connection with FCM/BD Cleared Transactions 
that are SBS cleared for such SBS Customers by such FCM/BD Clearing 
Member, excluding any FCM/BD Portfolio Margining Transactions.
    \18\ Therefore, any reference to the FCM/BD SBS Client 
Segregated Depository Account in Section 3 of the Procedures will be 
preceded by the condition that such account is established.
    \19\ The Regulations define an LCH SBS Client Segregated 
Depository Account to mean an omnibus account (which will consist of 
one or more accounts at one or more Banks which are commingled for 
purposes of the applicable provisions of the Exchange Act and SEC 
Regulations) maintained by LCH SA for the benefit of SBS Customers 
of its FCM/BD Clearing Members with a Bank, which is segregated in 
accordance with the Exchange Act and SEC Regulations and contains 
Collateral deposited by such FCM/BD Clearing Members on behalf of 
their SBS Customers in connection with FCM/BD Cleared Transactions 
that are SBS cleared for such SBS Customers by such FCM/BD Clearing 
Members, excluding any FCM/BD Portfolio Margining Transactions.
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    Section 3 of the Procedures will also be revised in the expectation 
that all FCM/BD Clients will elect to portfolio margin their SBS 
transactions. Specifically:
     Section 3.3(b) will be revised to provide that LCH SA will 
maintain an FCM/BD SBS Client Collateral Account to record the 
Collateral held by LCH SA for the benefit of such FCM/BD Clearing

[[Page 46223]]

Member's SBS Customers with respect to SBS only where required. Any 
reference to the FCM/BD SBS Client Collateral Account in Section 3 of 
the Procedures will be preceded by the condition that such account is 
established.
     Section 3.7(a)(ii)(z) will be revised to provide that LCH 
SA will maintain a TARGET2 Account to be used to make Collateral Calls 
in relation to the Client Margin Requirement(s) with respect to SBS 
only where required.\20\
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    \20\ As defined in the Rule Book, TARGET2 is the system known as 
Trans-European Automated Real-time Gross Settlement Express Transfer 
2. A TARGET2 Account is an account held by a TARGET2 participant in 
TARGET2 payment module with a Eurosystem Central Bank which is 
necessary for such TARGET2 participant to: (i) submit payment orders 
or receive payments via TARGET2; and (ii) settle such payments with 
such Eurosystem Central Bank.
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     Section 3.7(b) will be revised to provide that an FCM/BD 
Clearing Member has an obligation to maintain a TARGET2 Account for the 
purposes of the Collateral Calls in respect of its Client Margin 
Requirement(s) with respect to SBS only where required. Any reference 
to such TARGET2 Account in Section 3 of the Procedures will be preceded 
by the condition that such account is established.
     Section 3.8(b) will be revised to provide that LCH SA will 
be required to maintain a USD account to credit USD Cash Collateral 
which is transferred by FCM/BD Clearing Members to be recorded in their 
FCM/BD SBS Client Collateral Account (the ``LCH FCM/BD SBS Client USD 
Account'') only where required. Any reference to the LCH FCM/BD SBS 
Client USD Account in Section 3 of the Procedures will be preceded by 
the condition that such account is established.
     Section 3.14 (a) will be revised to provide that LCH SA 
will be required, upon request, to maintain a segregated depository 
account in BNYM US' books to register BNYM US Eligible Collateral \21\ 
which is transferred by FCM/BD Clearing Members in connection with SBS 
other than SBS that constitute FCM/BD Portfolio Margining Transactions 
(the ``LCH SBS Client Depository Account''). Any reference to the LCH 
SBS Client Depository Account in Section 3 of the Procedures will be 
preceded by the condition that such account is established.
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    \21\ ``BNYM US'' and ``BNYM US Eligible Collateral'' are defined 
below.
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     A new Section 3.18(b)(y) will be added to provide that the 
FCM/BD Clearing Member will establish a TARGET2 Account for the 
purposes of the Collateral Calls in respect of its Client Margin 
Requirement(s) with respect to SBS only where required. As noted 
earlier, LCH SA expects that all FCM/BD Clients will elect to portfolio 
margin all of their SBS transactions rather than maintain a separate 
FCM/BD SBS Client Segregated Depository Account. New Section 3.18(b)(y) 
confirms that LCH SA will not establish a TARGET2 Account with respect 
to SBS unless an FCM/BD Client does not elect to portfolio margin its 
SBS transactions.
     Section 3.18(c) will be revised to provide that an FCM/BD 
Clearing Member has an obligation to hold a Bank of New York Mellon 
(``BNYM'') cash account for the purposes of satisfying its Cash 
Payments obligations in respect of its Client Cleared Transactions that 
are SBS only where required.\22\
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    \22\ In each case, the revisions also make clear that the term 
``SBS'' excludes SBS that constitute FCM/BD Portfolio Margining 
Transactions.
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    Certain definitions set out in the Rule Book will also be revised, 
in each case, to recognize that FCM/BD Portfolio Margining 
Transactions, i.e., FCM/BD Cleared Transactions that are SBS and that 
are held in the FCM/BD Swaps Client Account Structure pursuant to the 
Portfolio Margining Program established in new FCM/BD Regulation 7, 
will be treated as Cleared Swaps for all purposes and, as such, 
governed by new FCM/BD Regulation 7. As with Article 6.2.1.1(iii), 
discussed earlier, the current definitions were adopted to implement 
the structure in place prior to the compliance date for the final 
capital, margin, and segregation requirements for security-based swap 
dealers and the adoption of the SEC Portfolio Margining Order, pursuant 
to which an FCM/BD Clearing Member that is both an FCM and a BD is 
authorized to clear and hold FCM/BD Cleared Transactions that are SBS 
for FCM/BD Clients in the FCM/BD Swaps Client Account Structure on a 
commingled basis with Cleared Swaps. With the adoption of new FCM/BD 
Regulation 7, references to current definitions or Articles in the Rule 
Book are revised to reflect the Portfolio Margining Program.\23\
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    \23\ In particular, references to Article 6.2.1.1(iii) have been 
removed. As noted earlier, with the implementation of the more 
comprehensive Portfolio Margining Program set out in Section 7 of 
the Regulations, Article 6.2.1.1 is unnecessary and is being 
deleted.
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    In particular:
     Cleared Swap. This definition currently provides that a 
Cleared Swap is an FCM/BD Cleared Transaction (i) constituting a 
Cleared Swap as defined in CFTC Regulation 22.1 or (ii) constituting an 
SBS that is held in the FCM/BD Swaps Client Account Structure set out 
in Article 6.2.1.1(i) in pursuant to Article 6.2.1.1(iii). As revised, 
subparagraph (ii) of the definition will provide that a Cleared Swap is 
an FCM/BD Cleared Transaction ``constituting an FCM/BD Portfolio 
Margining Transaction.''
     Cleared Swaps Customer. This definition currently provides 
that a Cleared Swaps Customer is (i) a Cleared Swaps Customer, as 
defined in CFTC Regulation 22.1, of an FCM/BD Clearing Member with 
respect to Cleared Swaps, that is an eligible contract participant as 
defined in Section 1a(18) of the CEA, other than subparagraph (C) 
thereof, or as may be further defined by CFTC Regulations, and (ii) a 
person that would be a Cleared Swaps Customer, as defined in CFTC 
Regulation 22.1, of an FCM/BD Clearing Member with respect to any 
transaction constituting an SBS that is a Cleared Swap under the 
definition in this Section 1.1.1, as if such transaction is a Cleared 
Swap for purposes of the definition of Cleared Swaps Customer in CFTC 
Regulation 22.1. As revised, subparagraph (ii) of the definition will 
provide that a Cleared Swaps Customer is ``a person that is treated as 
a Cleared Swaps Customer in connection with maintaining FCM/BD 
Portfolio Margining Transactions in the FCM/BD Swaps Client Account 
Structure of an FCM/BD Clearing Member pursuant to the Portfolio 
Margining Program.
     Cleared Swaps Customer Collateral. This definition 
currently provides that Cleared Swaps Customer Collateral is Cleared 
Swaps Customer Collateral, as defined in CFTC Regulation 22.1, with 
respect to Cleared Swaps, including with respect to any transaction 
constituting an SBS that is a Cleared Swap under the definition in 
Section 1.1.1, as if such transaction is a Cleared Swap for purposes of 
the definition of Cleared Swaps Customer Collateral in CFTC Regulation 
22.1. As revised, this definition will provide that Cleared Swaps 
Customer Collateral is Cleared Swaps Customer Collateral, as defined in 
CFTC Regulation 22.1, with respect to Cleared Swaps, including with 
respect to any transaction constituting an SBS that is an FCM/BD 
Portfolio Margining Transaction.
     FCM/BD Swaps Client Trade Account. This definition 
currently provides that an FCM/BD Swaps Client Trade Account is an 
account opened by LCH SA in the name of an FCM/BD Clearing Member for 
the benefit of the Customer of such FCM/BD Clearing Member in order to 
register all Cleared Swaps (including any SBS that are held

[[Page 46224]]

in the FCM/BD Swaps Client Account Structure as Cleared Swaps pursuant 
to Article 6.2.1.1(iii)) in relation to such FCM/BD Client). As 
revised, this definition will provide that an FCM/BD Swaps Client Trade 
Account is an account opened by LCH SA in the name of an FCM/BD 
Clearing Member for the benefit of the Customer of such FCM/BD Clearing 
Member in order to register all Cleared Swaps (including any SBS that 
constitute FCM/BD Portfolio Margining Transactions in relation to such 
FCM/BD Client).
     FCM/BD SBS Client Collateral Account. This definition 
currently provides, in relevant part, that an FCM/BD SBS Client 
Collateral Account is an account opened in the books of LCH SA to 
record the Collateral held by LCH SA for the benefit of an FCM/BD 
Clearing Member's SBS Customers with respect to FCM/BD Cleared 
Transactions that are SBS (excluding any SBS transactions held in the 
FCM/BD Swaps Client Account Structure as Cleared Swaps pursuant to 
Article 6.2.1.1(iii)). As revised, this definition will provide, in 
relevant part, that an FCM/BD SBS Client Collateral Account is an 
account opened in the books of LCH SA to record the Collateral held by 
LCH SA for the benefit of an FCM/BD Clearing Member's SBS Customers 
with respect to FCM/BD Cleared Transactions that are SBS (excluding any 
SBS that constitute FCM/BD Portfolio Margining Transactions).
     FCM/BD SBS Client Financial Account. This definition 
currently provides that an FCM/BD SBS Client Financial Account is a 
segregated account opened in the books of LCH SA for an SBS Customer of 
an FCM/BD Clearing Member with a view to record the Legally Segregated 
Value related to SBS (excluding SBS that are held in the FCM/BD Swaps 
Client Account Structure as Cleared Swaps pursuant to Article 
6.2.1.1(iii)) of such FCM/BD Clearing Member's SBS Customer as 
determined by LCH SA in accordance with the CDS Clearing Rules. As 
revised, this definition will provide that an FCM/BD SBS Client 
Financial Account is a segregated account opened in the books of LCH SA 
for an SBS Customer of an FCM/BD Clearing Member with a view to record 
the Legally Segregated Value related to SBS (excluding SBS that 
constitute FCM/BD Portfolio Margining Transactions) of such FCM/BD 
Clearing Member's SBS Customer as determined by LCH SA in accordance 
with the CDS Clearing Rules.
     FCM/BD SBS Client Margin Account. This definition 
currently provides that an FCM/BD SBS Client Margin Account is an 
account opened by LCH SA in the name of an FCM/BD Clearing Member for 
the benefit of each SBS Customer of such FCM/BD Clearing Member in the 
CDS Clearing System for risk management purposes, in which the SBS of 
the SBS Customers (excluding SBS that are held in the FCM/BD Swaps 
Client Account Structure as Cleared Swaps pursuant to Article 
6.2.1.1(iii)) are netted and corresponding Open Positions are 
registered, and each FCM/BD Client related SBS positions (excluding SBS 
transactions that are held in the FCM/BD Swaps Client Account Structure 
as Cleared Swaps pursuant to Article 6.2.1.1(iii)) corresponding to 
Eligible Intraday Transactions and Irrevocable Backloading STM 
Transactions pre-registered in the Account Structure of such FCM/BD 
Clearing Member (if so applicable pursuant to Article 6.2.3.1) are 
recorded, in order to calculate the FCM/BD Client Margin Requirement 
and Client NPV Payment Requirement of such FCM/BD Clearing Member in 
respect of such SBS Customer. As revised, this definition will provide 
that an FCM/BD SBS Client Margin Account is an account opened by LCH SA 
in the name of an FCM/BD Clearing Member for the benefit of each SBS 
Customer of such FCM/BD Clearing Member in the CDS Clearing System for 
risk management purposes, in which the SBS of the SBS Customers 
(excluding SBS that constitute FCM/BD Portfolio Margining Transactions) 
are netted and corresponding Open Positions are registered, and each 
FCM/BD Client related SBS positions (excluding SBS transactions that 
constitute FCM/BD Portfolio Margining Transactions) corresponding to 
Eligible Intraday Transactions and Irrevocable Backloading STM 
Transactions pre-registered in the Account Structure of such FCM/BD 
Clearing Member (if so applicable pursuant to Article 6.2.3.1) are 
recorded, in order to calculate the FCM/BD Client Margin Requirement 
and Client NPV Payment Requirement of such FCM/BD Clearing Member in 
respect of such SBS Customer.
     FCM/BD SBS Client Trade Account. This definition provides 
that an FCM/BD SBS Client Trade Account is an account opened by LCH SA 
in the name of an FCM/BD Clearing Member for the benefit of an SBS 
Customer of such FCM/BD Clearing Member in order to register all SBS 
cleared by such FCM/BD Clearing Member (excluding SBS that are held in 
the FCM/BD Swaps Client Account Structure as Cleared Swaps pursuant to 
Article 6.2.1.1(iii)) in relation to such SBS Customer. As revised, 
this definition will provide that an FCM/BD SBS Client Trade Account is 
an account opened by LCH SA in the name of an FCM/BD Clearing Member 
for the benefit of an SBS Customer of such FCM/BD Clearing Member in 
order to register all SBS cleared by such FCM/BD Clearing Member 
(excluding SBS that constitute FCM/BD Portfolio Margining Transactions) 
in relation to such SBS Customer.
b. Collateral/Accounts
    As noted above, in addition to the proposed changes linked to the 
implementation of the Program described in paragraph a. above, the 
Proposed Rule Change will also amend certain provisions of the Rule 
Book and the Procedures regarding permitted Collateral (including 
Eligible Collateral and Eligible Currency \24\), the Client Collateral 
Buffer, and the release of Collateral to a Clearing Member. With regard 
to Eligible Collateral, Section 3 of the Procedures will be amended to 
replace any references to US Treasury Bills (``US T-Bills'') by 
Eligible Collateral that may be held at the Bank of New York Mellon 
(``BNYM US'') since there are also other securities, in addition to US 
T-Bills, that could be held with BNYM US. Section 3 will refer instead 
to ``BNYM US Eligible Collateral'' or ``Eligible Collateral held at 
BNYM US'', where appropriate.\25\ With regard to Eligible Currency, 
Section 3.5 of the Procedures will be amended to provide that the Pound 
Sterling will no longer be an Eligible Currency for purposes of the 
FCM/BD Client Account Structure of an FCM/BD Clearing Member since LCH 
SA will not open an account for the purpose of depositing Cash 
Collateral under the form of Pound Sterling on behalf of FCM/BD Clients 
with a Permitted Depository as such term is defined in CFTC Regulations 
22.1 and 22.4. As a

[[Page 46225]]

result, Eligible Currencies for FCM/BD Client Account Structure will be 
limited to the Euro which is held in an LCH SA's TARGET 2 Account 
opened with Banque de France and the U.S. Dollar (``USD'') which is 
held in an LCH SA's account opened with BNYM US and Section 3.4(b) will 
be also amended for this purpose by permitting the transfer of non-Euro 
denominated Cash Collateral to be credited to LCH SA's accounts opened 
with Euroclear Bank in respect of the House Collateral Account and any 
Collateral Accounts of a CCM only (i.e. a clearing member that is not 
an FCM/BD Clearing Member). Indeed, LCH SA will not allow the transfer 
of Pound Sterling (included in the reference to ``non-Euro denominated 
Cash Collateral'') on behalf of FCM/BD Clients to be credited to an LCH 
SA's account opened with Euroclear Bank as it is not an eligible 
Permitted Depository within the meaning of CFTC Regulations 22.1 and 
22.4. Consequently, the provisions of Section 3.8(a) relating to the 
FCM/BD Swaps Client Non Euro Account and FCM/BD SBS Client Non Euro 
Account that should be opened in the name of LCH SA with Euroclear Bank 
will be removed as unnecessary.
---------------------------------------------------------------------------

    \24\ ``Eligible Collateral'' is broadly defined in Article 1.1.1 
of the Rule Book to mean such securities and other types of non-Cash 
Collateral as are set out in Section 3 of the Procedures as being 
acceptable by LCH SA for the purposes of satisfying a Clearing 
Member's Margin Requirements; ``Eligible Currency'' is defined to 
mean cash in such currencies as are set out in Section 3 of the 
Procedures as being acceptable by LCH SA as Cash Collateral.
    \25\ ``BNYM US Eligible Collateral is defined in Section 3.4(d) 
to mean Eligible Collateral that is acceptable to LCH SA to be held 
with BNYM US. Conforming changes replacing ``US T-Bills'' with 
``BNYM US Eligible Collateral'' or, as the case may be, ``Eligible 
Collateral held at BNYM US'', are made in Sections 3.2, 3.4, 3.7, 
3.8, 3.9, 3.11, 3.14, and 3.17. Notwithstanding the above, US T-
Bills are currently the only Eligible Collateral permitted to be 
deposited at BNYM US. If LCH SA determines to add additional 
Eligible Collateral, it will amend the List of Eligible Securities 
by publication of a Clearing Notice pursuant to Section 3.9.
---------------------------------------------------------------------------

    The Proposed Rule Change will also make a number of changes with 
regard to rules governing the Client Collateral Buffer, including the 
FCM/BD Client Collateral Buffer.\26\ The Client Collateral Buffer is 
the value of Collateral recorded as Client Collateral Buffer, which 
allows a Clearing Member to satisfy its margin requirements in respect 
of a Client Account Structure of that Clearing Member if there is no or 
insufficient Collateral held in the relevant Client Account Structure 
for the purpose of clearing a client trade leg. These changes regarding 
the Client Collateral Buffer first consist in revising Section 3.1 of 
Section 3 of the Procedures to expand the types of Collateral permitted 
to be held in the FCM/BD Client Collateral Buffer. Currently, an FCM/BD 
Clearing Member and a CCM may deposit only Euro to be maintained as 
Client Collateral Buffer. As amended, Section 3.1 will permit:
---------------------------------------------------------------------------

    \26\ The FCM/BD Client Collateral Buffer's definition includes 
both the FCM/BD Swaps Client Collateral Buffer and the FCM/BD SBS 
Client Collateral Buffer. The FCM/BD Swaps Client Collateral Buffer 
is defined in the Rule Book to mean the aggregate value of 
Collateral transferred by an FCM/BD Clearing Member to LCH SA, 
comprising such FCM/BD Clearing Member's own property, and recorded 
in such FCM/BD Clearing Member's FCM/BD Swaps Buffer Financial 
Account which may be used by LCH SA to meet obligations in respect 
of the Cleared Swaps of Cleared Swaps Customers, including for the 
purpose of satisfying the Notional and Collateral Checks performed 
by LCH SA in respect of Eligible Intraday Transactions comprising 
one or more Client Trade Leg(s). The FCM/BD Swaps Client Collateral 
Buffer is similarly defined.

--an FCM/BD Clearing Member to maintain as FCM Client Collateral Buffer 
Cash Collateral, meaning Eligible Currencies which will be limited to 
the Euro and USD and Eligible Collateral which is securities that can 
be held at BNYM US, as set out in a list published by LCH SA on its 
website, that are acceptable by LCH SA to be registered in the FCM/BD 
Client Collateral Account; \27\ and
---------------------------------------------------------------------------

    \27\ As noted directly above, Eligible Currencies will be 
limited to the Euro and the USD and Eligible Collateral to Eligible 
Collateral held at BNYM US, in respect of an FCM/BD Client Account 
Structure.
---------------------------------------------------------------------------

--a CCM to maintain as CCM Client Collateral Buffer Cash Collateral, 
meaning Eligible Currencies which will be limited to the Euro, USD and 
GBP and Eligible Collateral in the form of securities that are 
acceptable by LCH SA, as set out in a list published by LCH SA on its 
website, that may be transferred by way of full title transfer on a 
bilateral basis or pursuant to a triparty arrangement \28\ or by way of 
security interest under a Belgian law pledge.
---------------------------------------------------------------------------

    \28\ The possibility for a CCM to provide securities pursuant to 
triparty arrangement as Collateral to LCH SA is covered by a 
separate proposed rule change previously submitted to the SEC under 
the Filing No. SR-LCH SA-2023-004'' which is still subject to SEC's 
approval. As noted above in footnote no. 1, the version of the Rule 
Book and Section 3 of the Procedures which includes the Proposed 
Rule Change also reflects this separate proposed rule change.

    Sections 3.7(f), 3.8(f), 3.8(g), 3.10, 3.15(a) and 3.17(a) of the 
Procedures, which describe how a Clearing Member may transfer each type 
of Collateral to LCH SA, will also be revised to refer specifically to 
the transfer of Euro-denominated cash, non-Euro denominated Cash 
Collateral, USD denominated Cash Collateral, Eligible Collateral 
provided with full title transfer, Pledged Eligible Collateral and BNYM 
US Eligible Collateral, respectively, to be maintained as Client 
Collateral Buffer, provided that such Clearing Member is permitted to 
maintain that type of Collateral as Client Collateral Buffer. \29\
---------------------------------------------------------------------------

    \29\ Please refer to the previous paragraph which describes the 
type of Collateral accepted by LCH SA to be maintained as Client 
Collateral Buffer, depending on whether the Clearing Member is an 
FCM/BD Clearing Member or a CCM.
---------------------------------------------------------------------------

    As a consequence of the possibility to maintain Client Collateral 
Buffer with other type of Collateral than Euro Cash Collateral, the 
relevant provisions of the Rule Book \30\ pursuant to which the 
Allocated Client Collateral Buffer shall be transferred to the relevant 
CCM Client Collateral Account or, as the case may be, the relevant FCM/
BD Client Financial Account in certain circumstances will need to be 
amended. Indeed, where LCH SA determines that there is insufficient 
Client Excess Collateral allocated to: (i) in the case of a CCM: the 
relevant CCM Client Account Structure; or (ii) in the case of an FCM/BD 
Clearing Member: the relevant FCM/BD Client Margin Account, to enable 
the novation of a client trade leg, an amount of the Available Client 
Collateral Buffer shall be ``allocated'' to: (a) in the case of a CCM: 
the relevant CCM Client Account Structure; or (b) in the case of an 
FCM/BD Clearing Member: the relevant FCM/BD Client Margin Account. 
Pursuant to the current provisions of the Rule Book, in the event of an 
Event of Default occurring in respect of a Clearing Member, LCH SA 
will: (i) if the Defaulting Clearing Member is a CCM, transfer an 
amount of Cash Collateral denominated in Euro which is equal to the CCM 
Allocated Client Collateral Buffer for the relevant CCM Client Account 
Structure from the CCM House Collateral Account to the relevant CCM 
Client Collateral Account; or (ii) if the Defaulting Clearing Member is 
an FCM/BD Clearing Member, transfer an amount of Collateral which is 
equal to the FCM/BD Allocated Client Collateral Buffer for the relevant 
FCM/BD Client Margin Requirement from the FCM/BD Buffer Financial 
Account to the relevant FCM/BD Client Financial Account. Since an 
amount of Collateral equal to the value of the CCM Allocated Client 
Collateral Buffer needs to be transferred from the House Collateral 
Account of a Defaulting Clearing Member that is a CCM to the relevant 
CCM Client Collateral Account, if the Client Collateral Buffer is to be 
maintained with Collateral other than Euro Cash Collateral, LCH SA will 
need first to liquidate into Euro Collateral other than Euro Cash 
Collateral to be able to transfer the relevant amount denominated in 
Euro from the House Collateral Account to the relevant CCM Client 
Collateral Account in accordance with the proposed amended Clause 
4.2.2(i) of Appendix 1 (CDS Default Management Process) of the Rule 
Book. Equivalent changes need to be made to the provisions dealing with 
the transfer of an amount in Euro equivalent to the CCM Allocated 
Client Collateral Buffer

[[Page 46226]]

of a CCM in the event of: (a) an Early Termination Trigger Date, in 
accordance with the proposed amended Clauses 8.5.2(a)(i) and (b)(i) of 
Appendix 1 (CDS Default Management Process) of the Rule Book; and (b) 
an LCH Default in accordance with the proposed amended Article 
1.3.1.3(iv) of the Rule Book, save that under these circumstances, LCH 
SA will not be permitted to liquidate any Pledged Eligible Collateral 
taken into account in that CCM Client Collateral Buffer.
---------------------------------------------------------------------------

    \30\ Article 1.3.1.3(iv) of the Rule Book, Clauses 4.2.2(i), 
8.1.3 and 8.5.2(a)(i) and (b)(i) of Appendix 1 (CDS Default 
Management Process) of the Rule Book. We have taken the opportunity 
to remove the description of these circumstances from Section 2.3 
(c) of the Procedures as it was redundant with the afore-mentioned 
provisions of the Rule Book.
---------------------------------------------------------------------------

    Finally, Section 2.3(d) of the Procedures will be revised to 
provide that a Clearing Member may set or update its House Excess 
Collateral Threshold and/or Client Collateral Buffer Threshold on the 
Business Day such request will be made, instead of the next Business 
Day to meet Clearing Members' expectations to be able to update their 
House Excess Collateral Threshold more quickly than is currently 
possible.
    Further, the Proposed Rule Change will amend the Rule Book and the 
provisions of the Procedures by which an FCM/BD Clearing Member may 
increase the amount of Collateral held as FCM/BD Client Collateral 
Buffer \31\ above the Collateral Buffer Threshold, i.e., the minimum 
value of Collateral that an FCM/BD Clearing Member wishes to maintain 
as FCM/BD Client Collateral Buffer in the FCM/BD Buffer Financial 
Account that is part of the relevant FCM/BD Client Account Structure 
opened by LCH SA. In accordance with Chapter 2 of Title VI of the Rule 
Book, an FCM/BD Clearing Member may request LCH SA to open an FCM/BD 
Swaps Client Account Structure in which Cleared Swaps (including SBS 
that will constitute FCM/BD Portfolio Margining Transactions in 
accordance with the proposed amendments described in paragraph a. 
Portfolio Margining Program above) will be registered or an FCM/BD SBS 
Client Account Structure in which SBS (excluding SBS that will 
constitute FCM/BD Portfolio Margining Transactions in accordance with 
the proposed amendments described in paragraph a. Portfolio Margining 
Program above) will be registered. Each of these FCM/BD Client Account 
Structures currently includes, in particular:
---------------------------------------------------------------------------

    \31\ The definition of ``FCM/BD Client Collateral Buffer'' is 
set out in footnote no.23 above.
---------------------------------------------------------------------------

     an FCM/BD Client Collateral Account in which all the 
Collateral held on behalf of the relevant FCM/BD Clients is registered; 
a set of ``financial accounts'' in which the value of all the 
Collateral registered in the FCM/BD Client Collateral Account of that 
FCM/BD Client Account Structure is registered. Such set of financial 
accounts currently comprises:

--an FCM/BD Swaps Client Financial Account for each Cleared Swaps 
Customer, in respect of an FCM/BD Swaps Client Account Structure, in 
which the Legally Segregated Value \32\ related to Cleared Swaps of 
such Cleared Swaps Customer, or an FCM/BD SBS Client Financial Account 
for each SBS Customer in respect of an FCM/BD SBS Client Account 
Structure, in which the Legally Segregated Value related to SBS 
(including SBS that will constitute FCM/BD Portfolio Margining 
Transactions in accordance with the proposed amendments described in 
paragraph a. Portfolio Margining Program above) of such SBS Customer;
---------------------------------------------------------------------------

    \32\ The Legally Segregated Value's definition is set out in 
Section 1.1.1 of the Rule Book which currently provide that it is, 
with respect to an FCM/BD Clearing Member, the value determined by 
LCH SA, at the times and in the manner set out in Section 2.2(f) of 
the Procedures, for each FCM/BD Client Margin Account of such FCM/BD 
Clearing Member, based on the aggregate value of the Collateral 
(excluding FCM/BD Client Collateral Buffer) transferred by such FCM/
BD Clearing Member to LCH SA to meet such FCM/BD Clearing Member's 
FCM/BD Client Margin Requirement(s).
---------------------------------------------------------------------------

--an FCM/BD Swaps Client Financial Account, in respect of an FCM/BD 
Swaps Client Account Structure, or an FCM/BD SBS Buffer Financial 
Account, in respect of an FCM/BD SBS Client Account Structure, in which 
the value of the Collateral recorded as FCM/BD Client Collateral Buffer 
is registered; and
--an FCM/BD Swaps Unallocated Client Collateral Financial Account, in 
respect of an FCM/BD Swaps Client Account Structure in which the value 
of FCM/BD Swaps Unallocated Client Excess Collateral is registered, or 
an FCM/BD SBS Client Excess Collateral Financial Account, in respect of 
an FCM/BD SBS Client Account Structure, in which the value of FCM/BD 
SBS Client Excess Collateral is registered.

    The proposed revisions regarding the possibility for an FCM/BD 
Clearing Member to increase the amount of FCM/BD Client Collateral 
Buffer above the FCM/BD Client Collateral Buffer Threshold are being 
made to provide for the more efficient handling of Collateral held on 
behalf of FCM/BD Clients. Specifically:
     Article 4.2.2.3 of the Rule Book currently provides that 
only a CCM Clearing Member, and not an FCM/BD Clearing Member, may 
increase the amount of the Client Collateral Buffer. This Article will 
be amended to confirm that an FCM/BD Clearing Member may also increase 
the amount of Client Collateral Buffer above the Client Collateral 
Buffer Threshold.\33\
---------------------------------------------------------------------------

    \33\ Article 4.2.2.3 of the Rule Book further provides that 
transfers to the Client Collateral Buffer will be made in accordance 
with Section 2 and Section 3 of the Procedures.
---------------------------------------------------------------------------

     Article 4.2.2.5 of the Rule Book currently provides that 
in the event the FCM/BD Margin Balance of an FCM/BD Client Financial 
Account exceeds the relevant FCM/BD Client Margin Requirement prior to 
the Morning Call or the value of the Collateral attributed to the FCM/
BD Buffer Financial Account exceeds the FCM/BD Client Collateral Buffer 
Threshold, such amount of the excess, if related to Cleared Swaps, is 
reclassified as FCM/BD Swaps Unallocated Client Excess Collateral, as 
defined in Article 6.2.5.1 of the Rule Book, or, if related to SBS is 
reclassified as FCM/BD SBS Client Excess Collateral, and thereafter may 
be returned to the FCM/BD Clearing Member, or (y) recorded in the 
relevant FCM/BD Buffer Financial Account and further reclassified as 
FCM/BD Client Collateral Buffer, in each case in accordance with 
Section 3 of the Procedures and Section 6.2.5 of the Rule Book. The 
proposed amendments to Article 4.2.2.5 will consist in: (i) removing 
the reclassification of any value of the Collateral above the FCM/BD 
Client Collateral Buffer Threshold as FCM/BD Swaps Unallocated Client 
Excess Collateral, or FCM/BD SBS Client Excess Collateral, where 
appropriate, and (ii) providing the FCM/BD Clearing Member with the 
alternative of requesting the transfer of any FCM/BD Swaps Unallocated 
Client Excess Collateral, or FCM/BD SBS Client Excess Collateral, where 
appropriate, to the FCM/BD Buffer Financial Account and its 
reclassification as FCM/BD Client Collateral Buffer.
     Article 6.2.5.1(iv)(d) of the Rule Book currently provides 
that if a FCM/BD Clearing Member delivers Collateral to LCH SA on 
behalf of one or more FCM/BD Clients in an amount that would cause an 
FCM/BD Swaps Client Financial Account to contain FCM/BD Swaps Client 
Excess Collateral, then LCH SA may (i) reject the deposit, (ii) 
transfer the excess back to the Clearing Member, or (iii) accept the 
deposit and transfer the excess to the FCM/BD Swaps Unallocated Client 
Collateral Financial Account. In order to provide for more efficient 
handling of FCM/BD Swaps Client Excess Collateral and to place 
responsibility for the handling of

[[Page 46227]]

such Collateral with the FCM/BD Clearing Member, Article 6.2.5.1(iv)(d) 
will be revised to provide that, upon the request of an FCM/BD Clearing 
Member, LCH SA will either (x) return FCM/BD Swaps Unallocated Client 
Excess Collateral to such FCM/BD Clearing Member, in accordance with 
the conditions set out in Section 3 of the Procedures; or (y) 
reclassify such FCM/BD Swaps Unallocated Client Excess Collateral as 
FCM/BD Swaps Client Collateral Buffer and record the value of such 
Collateral to the relevant FCM/BD Swaps Buffer Financial Account.\34\ 
If the FCM/BD Clearing Member requests LCH SA to reclassify such FCM/BD 
Swaps Unallocated Client Excess Collateral as FCM/BD Swaps Client 
Collateral Buffer and record the value of such Collateral to the 
relevant FCM/BD Swaps Buffer Financial Account, the FCM/BD Clearing 
Member will be deemed to represent to LCH SA that such request reflects 
the true characterization of the Collateral held by LCH SA, including 
in particular that the Collateral is the property of the FCM/BD 
Clearing Member.\35\ A reference to this request for reclassification 
will be added to Article 6.2.5.1(iv)(c) for consistency purposes. 
Article 6.2.5.1(iii)(c) will provide that any excess FCM/BD Swaps 
Client Collateral Buffer will be returned to the relevant FCM/BD 
Clearing Member upon request.
---------------------------------------------------------------------------

    \34\ Article 6.2.5.1(iv)(d) of the Rule Book further provides 
that, upon making any request the FCM/BD Clearing Member will be 
deemed to represent and warrant that such request complies with CFTC 
Regulations and has been made by an authorized individual.
    In this regard, LCH SA notes that, in accordance CFTC Rule 22.2, 
17 CFR 22.2, an FCM/BD Clearing Member is permitted to commingle in 
a single account all Cleared Swaps Customer Collateral that it 
receives from, for, or on behalf of multiple Cleared Swaps Customers 
and, further, is required to maintain such portion of its own funds 
as may be necessary to assure that the assets of one Cleared Swaps 
Customer are not used to meet the obligations of another Cleared 
Swaps Customer. (This amount is known as the FCM/BD's residual 
interest.) By requesting LCH SA to reclassify FCM/BD Swaps 
Unallocated Client Excess Collateral as FCM/BD Swaps Client 
Collateral Buffer, the FCM/BD would be representing that such amount 
is a part of the FCM/BD's residual interest.
    \35\ The FCM/BD Clearing Member must further agree to provide 
such additional information as LCH SA may reasonably request for 
purposes of effecting the requested return or reclassification.
---------------------------------------------------------------------------

     Article 6.2.5.1(ii) of the Rule Book will be revised to 
provide that FCM/BD Swaps Unallocated Client Excess Collateral also 
includes any amounts transferred to the FCM/BD Swaps Unallocated Client 
Collateral Financial Account in accordance with Article 6.2.4.4(i). 
Further, in the event an FCM/BD Clearing Member delivers Collateral to 
LCH SA on behalf of one or more FCM/BD Clients in an amount that would 
cause an FCM/BD Swaps Client Financial Account to contain FCM/BD Swaps 
Client Excess Collateral, LCH SA will accept the deposit and 
immediately transfer the amount of such excess to the FCM/BD Clearing 
Member's FCM/BD Swaps Buffer Financial Account, whereupon it shall also 
become FCM/BD Swaps Client Collateral Buffer. The Article currently 
provides that LCH SA may also (a) reject the deposit or (b) immediately 
transfer the entire deposit or the amount of such excess back to the 
FCM/BD Clearing Member.
     Article 6.2.5.2 of the Rule Book establishes a procedure 
with regard to FCM/BD SBS Excess Collateral or FCM/BD SBS Client 
Collateral Buffer that parallels the procedures in Article 6.2.5.1 
above with regard to FCM/BD Swaps Client Collateral. That is, if a FCM/
BD Clearing Member delivers Collateral to LCH SA on behalf of one or 
more SBS Customers in an amount that would cause an FCM/BD SBS Client 
Financial Account to contain FCM/BD SBS Client Excess Collateral, the 
current rule provides that LCH SA may (i) reject the deposit, (ii) 
transfer the excess back to the Clearing Member, or (iii) accept the 
deposit and transfer the excess to the FCM/BD SBS Unallocated Client 
Collateral Financial Account. In order to provide for more efficient 
handling of FCM/BD SBS Client Excess Collateral and to place 
responsibility for the handling of such Collateral with the FCM/BD 
Clearing Member, Article 6.2.5.2(ii) will be revised to provide that 
LCH SA will accept the deposit and immediately transfer the amount of 
such excess to the FCM/BD Clearing Member's FCM/BD SBS Buffer Financial 
Account, whereupon it shall also become FCM/BD SBS Client Collateral 
Buffer.
    The Proposed Rule Change will also amend various provisions of 
Section 3 of the Procedures to clarify the process by which a Clearing 
Member may request the return of Collateral. In particular:
     Section 3.7(g) of the Procedures currently describes the 
manner in which an FCM/BD Clearing Member may request the return of 
FCM/BD Swaps Unallocated Client Excess Collateral in the form of Euro-
denominated Cash Collateral to the FCM/BD Clearing Member's Client 
Collateral Financial Account. This Article will be revised to establish 
the process by which an FCM/BD Clearing Member may request the release 
of Euro denominated Cash Collateral recorded in the FCM/BD Client 
Collateral Account and will provide that such Collateral may be 
released only if LCH SA determines that it will continue to hold 
Collateral sufficient to cover the FCM/BD Client Requirement for each 
FCM/BD Client Margin Account and to satisfy the FCM/BD Clearing 
Member's Client Collateral Buffer Threshold.\36\
---------------------------------------------------------------------------

    \36\ Section 3.8(i) and Section 3.17(b) set out a similar 
process by which an FCM/BD Clearing Member may request the release 
of USD denominated Cash Collateral and Eligible Collateral held at 
BNYM US, respectively, recorded in the FCM/BD Client Collateral 
Account.
---------------------------------------------------------------------------

     Section 3.8(h) and Section 3.15 (b) of the Procedures 
extends the process by which a CCM may request the return of non-Euro 
denominated Cash Collateral to the return of non-Euro denominated Cash 
Collateral and Pledged Eligible Collateral, respectively, recorded as 
CCM Client Collateral Buffer in its CCM House Collateral Account.\37\
---------------------------------------------------------------------------

    \37\ Because Section 3.5 of the Procedures will be amended to 
provide that the Pound Sterling will no longer be an Eligible 
Currency for purposes of the FCM/BD Client Account Structure of an 
FCM/BD Clearing Member, the provisions of Section 3.8(h) relating to 
the re-calculation of the Non-Euro Cash Collateral Value of an FCM/
BD Swaps Unallocated Client Collateral recorded in the FCM/BD Swaps 
Unallocated Client Collateral Financial Account and the re-
calculation of the Non-Euro Cash Collateral Value of an FCM/BD SBS 
Client Excess Collateral recorded in the FCM/BD SBS Client Excess 
Collateral Financial Account will be removed as unnecessary.
---------------------------------------------------------------------------

     Section 3.10.1(c) of the Procedures and Section 3.10.2(d) 
set out a similar process by which a CCM may request the return of 
Eligible Collateral transferred with full title, on a bilateral basis 
and pursuant to a triparty arrangement, respectively, recorded as CCM 
Client Collateral Buffer in its CCM House Collateral Account.
    The Proposed Rule Change will also revise Section 3.18(b) and (c) 
of the Procedures to clarify the use of TARGET2 Accounts by LCH SA and 
its Clearing Members for satisfying Cash Payment obligations and/or 
Variation Margin Collateral Transfer obligations \38\ in Euro, and the 
use of BNYM Accounts by LCH SA and its Clearing Members with regard to 
Cash Payments and/or the transfer of Variation Margin Collateral in 
USD. With regard to

[[Page 46228]]

TARGET2 Accounts, Section 3.18(b) will be revised to provide that, for 
the purpose of making or receiving Cash Payments in Euro, LCH SA will 
use: (a) the LCH House TARGET2 Account to satisfy Cash Payments and/or 
Variation Margin Collateral Transfer obligations in Euro with respect 
to all relevant House Cleared Transactions of each Clearing Member; and 
(b) the LCH CCM Client TARGET2 Account for satisfying Cash Payments 
and/or Variation Margin Collateral Transfer obligations in Euro with 
respect to all relevant Client Cleared Transactions of each Clearing 
Member.
---------------------------------------------------------------------------

    \38\ A Cash Payment obligation is broadly defined in Section 
1.1.1 of the Rule Book to mean any payment due by a Clearing Member 
to LCH SA, or due to be received by a Clearing Member from LCH SA. 
For FCM/BD Clearing Members, such Cash Payments include variation 
margin payments (because variation margin payments are treated as 
settlement). Variation Margin Collateral Transfer obligations are 
only relevant to CCM Clearing Members that treat variation margin as 
collateral rather than settlement. Section 3.18(a) of the Procedures 
further provides for a list of Cash Payment and Variation Margin 
Type which includes: CDS or Index Swaption-related payments (Initial 
Payment Amount, Fixed Amounts or as the case may be, Premium, cash 
amounts due upon the occurrence of Credit Events and cash amounts 
due in connection with an MTM change), Variation Margin, Price 
Alignment Interest, NPV Payment, Price Alignment Amount, Clearing 
House Adjustments, Fees and remuneration.
---------------------------------------------------------------------------

    Section 3.18(b) will be further revised to provide that, with 
regard to an FCM/BD's Clearing Member's Client Cleared Transactions, 
LCH SA will use: (a) the FCM/BD Clearing Member's TARGET2 Account 
established for the purposes of the Collateral Calls in respect of its 
Client Margin Requirement(s) with respect to Cleared Swaps and FCM/BD 
Client Collateral Buffer Threshold will be used for the debits and 
credits made out the LCH CCM Client TARGET2 Account for the purposes of 
satisfying Cash Payments obligations regarding all relevant Client 
Cleared Transactions of that FCM/BD Clearing Member that are Cleared 
Swaps; and (b) the FCM/BD Clearing Member's TARGET2 Account established 
for the purposes of the Collateral Calls in respect of, where required, 
its Client Margin Requirement(s) with respect to SBS (excluding SBS 
that constitute FCM/BD Portfolio Margining Transactions) and FCM/BD 
Client Collateral Buffer Threshold will be used for the debits and 
credits made out the LCH CCM Client TARGET2 Account for the purposes of 
satisfying Cash Payments obligations regarding all relevant Client 
Cleared Transactions of that FCM/BD Clearing Member that are SBS 
(excluding SBS that constitute FCM/BD Portfolio Margining 
Transactions).
    Section 3.7(d)(iii) will be amended to provide that, in respect of 
the FCM/BD Client Account Structure of an FCM/BD Clearing Member, there 
will be no aggregation of payments between Euro denominated Cash 
Payments and Euro denominated Cash Collateral transfers through TARGET2 
since Euro denominated Cash Payments will be made by using the LCH CCM 
Client TARGET2 Account whereas the transfer of Euro denominated Cash 
Collateral will be made by using the LCH FCM/BD Swaps Client TARGET2 
Account or, as the case may be, the LCH FCM/BD SBS Client TARGET2 
Account. Further, and for the avoidance of doubt, with regard to the 
FCM/BD Clearing Members' Client Cleared Transactions: (x) the FCM/BD 
Clearing Member's TARGET2 Account established for the purposes of the 
Collateral Calls in respect of its Client Margin Requirement(s) with 
respect to Cleared Swaps and FCM/BD Client Collateral Buffer Threshold 
will be used for the debits and credits made out the LCH CCM Client 
TARGET2 Account for the purposes of satisfying Cash Payments 
obligations regarding all relevant Client Cleared Transactions of that 
FCM/BD Clearing Member that are Cleared Swaps; and (y) the FCM/BD 
Clearing Member's TARGET2 Account established for the purposes of the 
Collateral Calls in respect of, where required, its Client Margin 
Requirement(s) with respect to SBS (excluding SBS that constitute FCM/
BD Portfolio Margining Transactions) and FCM/BD Client Collateral 
Buffer Threshold will be used for the debits and credits made out the 
LCH CCM Client TARGET2 Account for the purposes of satisfying Cash 
Payments obligations regarding all relevant Client Cleared Transactions 
of that FCM/BD Clearing Member that are SBS (excluding SBS that 
constitute FCM/BD Portfolio Margining Transactions).
    With regard to BNYM Accounts,\39\ Section 3.18(c) will be revised 
to provide that, for the purpose of making or receiving Cash Payments 
and/or the transfer of Variation Margin Collateral in USD, LCH SA will 
maintain only two BNYM Accounts. One account will be used to debit or 
credit USD to satisfy Cash Payments and/or Variation Margin Collateral 
Transfer obligations in USD with respect to all relevant House Cleared 
Transactions of each Clearing Member (the ``LCH House BNYM Account''); 
the second account will be used to debit or credit USD to satisfy Cash 
Payments and/or Variation Margin Collateral Transfer obligations in USD 
with respect to all relevant Client Cleared Transactions of each 
Clearing Member (the ``LCH Client BNYM Account''). The provisions of 
Section 3.18(c) that currently require LCH SA to maintain (x) a cash 
account used to debit or credit USD to satisfy Cash Payments and/or 
Variation Margin Collateral Transfer obligations in USD with respect to 
all relevant Client Cleared Transactions of each CCM (the ``LCH CCM 
Client BNYM Account''); (y) a cash account used to debit or credit USD 
to satisfy Cash Payments obligations in USD with respect to all 
relevant Client Cleared Transactions of each FCM/BD Clearing Member 
that are Cleared Swaps (the ``LCH FCM/BD Swaps Client BNYM Account''); 
and (z) a cash account used to debit or credit USD to satisfy Cash 
Payments and/or Variation Margin Collateral Transfer obligations in USD 
with respect to all relevant Client Cleared Transactions of each FCM/BD 
Clearing Member that are SBS (excluding SBS that are held in the FCM/BD 
Swaps Client Account Structure) (the ``LCH FCM/BD SBS Client BNYM 
Account'') will be removed.\40\
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    \39\ As noted above, USD is the only Eligible Currency and US 
Treasury bills are the only Eligible Collateral held in BNYM 
accounts.
    \40\ As discussed above, LCH SA expects that all FCM/BD Clients 
will elect to portfolio margin their SBS transactions. Therefore, 
LCH SA does intend to maintain SBS related Client Accounts only if 
required.
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    The references to the former time slot for the Cash Payments in 
respect of Client Variation Margin Requirements of an FCM/BD Clearing 
Member that is no longer exists will be deleted from Section 3.18(d) 
and Section 5.5 (step no.10) of the Procedures.
c. Miscellaneous Amendments
i. Time Reference
    Article 1.2.8.1 of the Rule Book currently provides that where 
reference is made in the CDS Clearing Documentation to a time or 
deadline, it shall be understood to mean Central European Time (CET), 
unless otherwise stipulated in the CDS Clearing Documentation. For the 
sake of clarity and avoid any confusion on the time zone that LCH SA 
will follow, especially when Central European Summer Time (CEST) 
applies, this Section will be revised to provide that where reference 
is made in the CDS Clearing Documentation to a time or deadline, it 
shall be understood to mean Paris Time, unless otherwise stipulated in 
the CDS Clearing Documentation. As a result, all references to CET in 
the Procedures will be removed and Section 1.4 (Timing) of Parts A, B 
and C of the CDS Clearing Supplement to remove the reference to Central 
European Time and provide that any reference to a time of day herein 
shall be deemed to be a reference to the time zone as set out in 
Section 1.2.8 (Time reference) of the Rule Book unless otherwise 
provided herein.
    Section 5.18 of the Procedures will be also amended to remove the 
provisions pursuant to which references to times and deadlines in this 
paragraph 5.18 are to London local time (being Greenwich Mean Time 
(GMT) or British Summer Time (BST) as applicable) unless otherwise 
specified because these provisions are not used in the absence of any 
reference to times or deadlines in this paragraph.

[[Page 46229]]

ii. Real Time Session
    The Rule Book defines ``Real Time Session'' to mean the period 
commencing at the Start of Real Time and ending at the End of Real Time 
in respect of each Clearing Day. Start of Real Time (SoRT), in turn, is 
defined as the time as specified in a Clearing Notice. LCH SA will 
adopt a new Clearing Notice, which will provide that, unless notified 
otherwise:
     ``Start of Real Time (SoRT)'' means on each Clearing Day, 
the earlier of: (i) the time when all relevant Clearing Members have 
satisfied the Morning Call; and (ii) 09.05 (Paris time); and
     ``End of Real Time'' means 16.30 (New York time) on each 
Clearing Day.
    Further, LCH SA may decide to change the Start of Real Time and/or 
the End of Real Time to a different time for operational or other 
reasons (including, but not limited to, on a Clearing Day that is a 
holiday in the United States). In such circumstances, the Clearing 
Members will be informed of the amended Start of Real Time and/or 
amended End of Real Time through service notification.\41\ LCH SA will 
publish any amendments or modifications to the content of the Clearing 
Notice in an updated Clearing Notice.
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    \41\ This paragraph currently provides: If for any reason LCH SA 
is not able to start or end the Real Time Session at the times 
indicated above, or is required to start or end the Real Time 
Session otherwise than at the times indicated above, LCH SA may 
decide to change the Start of Real Time and/or the End of Real Time 
to a different time that will be communicated to the Clearing 
Members. In such exceptional case, the Start of Real Time and/or the 
End of Real Time shall be the time where the relevant service 
notification of the opening or the closing (as applicable) of the 
Real Time Session is sent.
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iii. Opening Hours
    Article 2.3.3.5 of the Rule Book will be revised to provide that 
each Clearing Member shall ensure that appropriate personnel are 
available for communications with LCH SA during the Real Time Session, 
instead of Opening Hours. An equivalent change will be made to Section 
5.1(c) of the Procedures pursuant to which LCH SA is open during the 
Real Time Session and the operations team of LCH SA will be available 
during the Real Time Session. The opening hours applicable to the 
customer technical helpdesk will be also removed from this Section. 
Consequently, the defined term ``Opening Hours'' will be removed from 
the definitions section of the Rule Book since it will be no longer 
used.
    Finally, other minor amendments made for consistency purposes, or 
the sake of clarity, will be made to the Rule Book, the Procedures and 
the Regulations. For instance, the definition of CCM in the Rule Book 
will be updated to replace the incorrect reference to FCM/BD Clearing 
Member by FCM/BD since a Clearing Member cannot be admitted as a CCM 
and an FCM/BD Clearing Member at the same time and the purpose of the 
reference to an FCM/BD in the definition of a CCM is to explain how an 
entity registered as an FCM and as a BD may be admitted as a CCM under 
the CDS Clearing Rules.
d. Amendments to Liquidity Risk Modelling Framework
    LCH SA is required to maintain certain levels of liquidity but 
given the CFTC segregation requirements applicable to derivative 
clearing organizations (DCOs), FCM/BD Clients' funds should be 
considered segregated as they are not available resources to LCH SA in 
a default management context unless the liquidity requirement is driven 
by the FCM/BD Clearing Member of such FCM/BD Clients. As part of the 
effective coming onboarding process of FCM/BD Clearing Members, LCH SA 
will reflect these requirements by making a number of updates and 
adjustments to its Liquidity Risk Modelling Framework mainly specifying 
that resources received from FCM/BD Clearing Members on behalf on their 
FCM/BD Clients or securities resulting from investment of FCM/BD 
Clients' funds are excluded from liquidity resources available unless 
the liquidity requirement is driven by the FCM/BD Clearing Member of 
such FCM/BD clients. Moreover, LCH SA is also updating its Liquidity 
Risk Modelling for the sake of clarity; such amendments are not 
strictly related to the FCM/BD related initiative.
    In this regard:
     Section 1.1.1 (Reminder of SA's activities) will be 
updated in respect of the description of product scope of CDSClear to 
provide that clearing activities relate to the clearing of US, 
Australia, Asia and sovereign index and single names CDS negotiated on 
OTC markets as well. This amendment has been made for the sake of 
clarity and it is not linked to the FCM/BD related initiative itself.
     Section 1.6.1 (Liquidity Sources) will provide that cash 
collateral posted by FCM/BD Clearing Members on behalf of their FCM/BD 
Clients or excess cash for FCM/BD Clients of FCM/BD Clearing Member(s) 
that can be generated on an intraday basis, as well as securities 
resulting from the investment of that cash are excluded from the 
available liquidity resources unless the liquidity need is generated by 
the FCM/BD Clearing Member of such FCM/BD Clients. Moreover, it will be 
clarified that LCH SA has the right to consider available for liquidity 
purposes all the resources collected if deposited under the full title 
transfer regime. Since Collateral deposited by FCM/BD Clearing Members 
on behalf of their FCM/BD Clients is subject to a security interest, a 
footnote, which currently provides for the list of Collateral which is 
not transferred by way of full title transfer, will be amended to add a 
reference to Collateral received from FCM/BD Clients.
     Section 1.6.1.1 (Collateral transfer to the 3G pool) will 
be updated to reflect the fact that non-cash collateral deposited via a 
Single Pledged Account is a way to post Collateral for activities not 
limited to CDS related activities only and to provide that USD 
securities received from FCM/BD Clients would not be deposited via Full 
Title Transfer Accounts.
     Section 1.6.1.2 (Assessment of assets' liquidity) will 
provide that LCH SA cannot rehypothecate non cash collateral collected 
from FCM/BD Clients to raise liquidity unless the FCM/BD Clearing 
Member of such FCM/BD clients is in default. The same treatment will 
also apply to securities resulting from FCM/BD Clients' cash which has 
been invested.
     Section 1.6.1.3 (Synthesis) which consists in a table 
summarizing the liquidity sources, will be amended as follows:
    [cir] Cash and US non cash collateral received from FCM/BD Clearing 
Members on behalf of their FCM/BD Clients and excess cash for FCM/BD 
clients of FCM/BD clearing member(s) that can be generated on an 
intraday basis are excluded unless the liquidity requirement is driven 
by the FCM/BD Clearing Member of such FCM/BD Clients.
    [cir] Securities resulting from investment of FCM/BD Clients' money 
cannot be used for liquidity purposes unless the liquidity requirement 
is driven by the FCM/BD Clearing Member of such FCM/BD Clients.
     The description of the liquidity need ``Repayment of 
excess cash by members'' in Section 4.1.2 (Model inputs and Variable 
selection) will be amended by adding a footnote specifying that Non 
Euro non cash securities in DKK, NOK, SEK, JPY, CHF, CAD, AUD are 
excluded from the liquidity resources to be consistent with the 
description in section 4.1.5. These amendments are made for consistency 
purposes and are not linked to the FCM/BD related initiative.

[[Page 46230]]

    Sections 4.1.2 (Model inputs and Variable selection) and 4.1.5 
(Model assumptions) will be amended to provide that, when calculating 
the liquid resources available to be compared against the Operational 
Target \42\ the cash received from the FCM/BD Clearing Members on 
behalf of their FCM/BD Clients is excluded. An equivalent change to the 
footnotes is made when computing the liquidity requirement relating to 
margin reduction and repayment of excess collateral for which the FCM/
BD Clients' resources are excluded. Moreover in Section 4.1.5, 
paragraph c., a typographical error in the penultimate sentence will be 
amended.
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    \42\ The Operational Target represents the amount of liquidity 
to be held to satisfy the liquidity needs related to the operational 
management of the CCP in a stressed environment that does not lead 
to a member's default.
---------------------------------------------------------------------------

     Sections 4.2.2 (Model inputs and Variable selection) and 
4.2.4 (Mathematical formula, derivation and algorithm, and numerical 
approximation) will be amended to provide that in the calculation of 
the Liquidity Coverage Ratio (LCR) of the CCP the resources of FCM/BD 
Clients must be considered segregated and therefore unavailable for 
liquidity purposes unless the relevant FCM/BD Clearing Member is among 
the Cover 2 members assumed to be in default in the LCR. Also, in the 
case where an FCM/BD Clearing Member is among the Cover 2 the 
possibility to use the resource held on behalf of FCM/BD Clients for 
liquidity purposes is capped to the obligations of the FCM/BD Client.
     Sections 4.2.5.3 (Stress scenario selection) will be 
amended to refer to CDSClear rather than CDS when describing the market 
stress scenario considered in the LCR. The amendment is made for 
consistency purposes and is not linked to the FCM/BD related 
initiative.
     Sections 4.3.2 (Model inputs and Variable selection) and 
4.3.4 (Mathematical formula, derivation and algorithm, and numerical 
approximation) will specify that, in the calculation of the Liquidity 
Coverage Ratio (LCR) for the interoperable CCP, the resources held on 
behalf of FCM/BD Clients must be considered segregated and therefore 
unavailable for liquidity purposes.
    In Appendix 6.3 (Reminder of SA's sources of liquidity and related 
risk drivers), two footnotes have been added to specify that cash held 
on behalf of FCM/BD Clients (allocated and in excess) is excluded 
unless the liquidity requirement is driven by the relevant FCM/BD 
Clearing Member. With respect to the source of liquidity coming from 
Non-Euro non-cash collateral posted in full title transfer, a footnote 
have been added to specify that securities collateral collected from 
FCM/BD Clients is excluded unless the liquidity requirement is driven 
by an the relevant FCM/BD Clearing Member; the footnote has also been 
expanded by specifying that securities in DKK, NOK, SEK, CAD, AUD, CHF 
and JPY are excluded from the liquidity resources, which is an 
amendment not linked to the FCM/BD related initiative but made for 
consistency purposes. In the end, with respect to the liquidity source 
coming from the collateral of investment activity, a footnote will be 
added to specify that securities coming from FCM/BD Clients investment 
shall be excluded unless the relevant FCM/BD Clearing Member is in 
default.
    With the exception of the above Proposed Rule Changes, no other 
change are required.
2. Statutory Basis
    LCH SA has determined that the Proposed Rule Change is consistent 
with the requirements of Section 17A of the Act \43\ and regulations 
thereunder applicable to it. In particular, Section 17A(b)(3)(F) of the 
Act provides, inter alia, that the rules of a clearing agency must be 
designed: (a) to promote the prompt and accurate clearance and 
settlement of derivative agreements, contracts, and transactions; (b) 
to assure the safeguarding of securities and funds which are in the 
custody or control of the clearing agency or for which it is 
responsible; (c) and, in general, to protect investors and the public 
interest.\44\ Further, Commission Rule 17Ad-22(e)(21) requires a 
central counterparty (``CCP'') that is involved in activities with a 
more complex risk profile, e.g., that provides CCP services for 
security-based swaps, to maintain and enforce written policies and 
procedures reasonably designed, inter alia, to be efficient and 
effective in meeting the requirements of its participants and the 
markets it serves.\45\
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    \43\ 15 U.S.C. 78q-1.
    \44\ 15 U.S.C. 78q-1(b)(3)(F).
    \45\ 17 CFR 240.17Ad-22(e)(21).
---------------------------------------------------------------------------

    As discussed above, the provisions of the Proposed Rule Change 
implementing the Portfolio Margining Program will authorize LCH SA to 
offer FCM/BD Clearing Members, on behalf of their FCM/BD Clients, the 
ability to elect to portfolio margin FCM/BD Cleared Transactions that 
are SBS with FCM/BD Cleared Transactions that are Cleared Swaps. The 
Regulations implementing the Program are designed to ensure that the 
Program complies with the terms and conditions set out in the SEC 
Portfolio Margining Order and the CFTC Portfolio Margining Order. Among 
other requirements, these Orders ensure that all funds deposited with 
an FCM/BD Clearing Member to margin Portfolio Margin Transactions will 
be segregated in accordance with the requirements of Section 4d(f) of 
the Commodity Exchange Act \46\ and the rules of the Commodity Futures 
Trading Commission thereunder.\47\ Further, FCM/BD Clearing Members 
that provide FCM/BD Clients the ability to portfolio margin FCM/BD 
Cleared Transactions that are SBS with FCM/BD Cleared Transactions that 
are Cleared Swaps must acknowledge that, in accordance with the SEC 
Portfolio Margining Order, they have provided FCM/BD Clients a written 
disclosure to ensure that such FCM/BD Clients are aware that the funds 
deposited with FCM/BD Clearing Member to margin Portfolio Margining 
Transactions will not be held in accordance with the broker-dealer 
segregation requirements of Section 15(c)(3) and Section 3E of the Act 
\48\ and the rules thereunder, and any customer protections under SIPA 
and the stockbroker liquidation provisions, will not apply.
---------------------------------------------------------------------------

    \46\ 7 U.S.C. 6d(f).
    \47\ 17 CFR 22.2, 22.3.
    \48\ 15 U.S.C. 78o, 78c-5.
---------------------------------------------------------------------------

    By implementing a Portfolio Margining Program that complies with 
the terms and conditions of the SEC Portfolio Margining Order and the 
CFTC Portfolio Margining Order, the Regulations set out in the Proposed 
Rule Change will: (a) promote the prompt and accurate clearance and 
settlement of derivative agreements, contracts, and transactions by 
encouraging FCM/BD Clients to clear more transactions at LCH SA; (b) 
assure the safeguarding of securities and funds which are in the 
custody or control of the clearing agency or for which it is 
responsible by allowing LCH SA to margin an FCM/BD Client's positions 
collectively rather than separately; (c) and, in general, protect 
investors and the public interest by accommodating the portfolio 
margining needs of market participants who must react quickly to 
dynamic market conditions, risk management and hedging requirements, 
and evolving portfolio compositions. As such, the Regulations are 
reasonably designed to be efficient and effective in meeting the 
requirements of LCH SA's participants and the markets it serves, within 
the meaning of Section 17A(b)(3)(F) of the Act and Commission Rule 
17Ad-22(e)(21).

[[Page 46231]]

    Other provisions of the Proposed Rule Change will: (a) amend the 
definition of Eligible Collateral to provide that the Pound Sterling 
will no longer be an Eligible Currency for purposes of the FCM/BD 
Client Account Structure of an FCM/BD Clearing Member; (b) expand the 
types of Collateral permitted to be held in the FCM/BD Client 
Collateral Buffer; (c) set out the process by which an FCM/BD Clearing 
Member may increase the amount of Collateral held in the FCM/BD Client 
Collateral Buffer above the Collateral Buffer Threshold; (d) set out 
the process by which a Clearing Member may request the return of 
Collateral; and (e) clarify the use of TARGET2 Accounts for satisfying 
Cash Payment obligations and/or Variation Margin Collateral Transfer 
obligations in Euro, and the use of BNYM Accounts with regard to Cash 
Payments and/or the transfer of Variation Margin Collateral in USD. The 
greater detail provided by these amendments will similarly: (x) promote 
the prompt and accurate clearance and settlement of derivative 
agreements, contracts, and transactions by allowing FCM/BD Clearing 
Members to exercise greater and more flexible control over Collateral 
in general and the Collateral Buffer specifically, which will better 
assure that the Clearing Member always have sufficient Collateral at 
LCH SA to meet its obligations; (y) assure the safeguarding of 
securities and funds which are in the custody or control of the 
clearing agency or for which it is responsible; (z) and, in general, 
protect investors and the public interest. These amendments, therefore, 
are reasonably designed to be efficient and effective in meeting the 
requirements of LCH SA's participants and the markets it serves, within 
the meaning of Section 17A(b)(3)(F) of the Act and Commission Rule 
17Ad-22(e)(21).
    As discussed above, LCH SA is also proposing to amend its Liquidity 
Risk Modelling Framework to address the CFTC segregation requirements 
applicable to FCMs and customers.\49\ Specifically, the amended 
Liquidity Risk Modelling Framework will anticipate the effective 
onboarding process of FCMs and will permit LCH SA to take into account, 
in its liquidity monitoring process, the specific segregation 
requirements to ensure the customers funds protection of this category 
of clearing members which is fully consistent with the requirements of 
Section 17A(b)(3)(F) of the Act providing, inter alia, that the rules 
of a clearing agency must be designed: (b) to assure the safeguarding 
of securities and funds which are in the custody or control of the 
clearing agency or for which it is responsible; (c) and, in general, to 
protect investors and the public interest.\50\
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    \49\ 17 CFR 1.20.
    \50\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    LCH SA also believes that this proposed change is consistent with 
Exchange Act Rule 17Ad-22(e)(1) \51\ that requires a covered clearing 
agency to establish, implement, maintain and enforce written policies 
and procedures reasonably designed to provide for a well-founded, 
clear, transparent, and enforceable legal basis for each aspect of its 
activities in all relevant jurisdictions. As described above, the 
Proposed Rule Change will be (i) ensuring that the Program complies 
with the terms and conditions set out by the CFTC and SEC in the US 
jurisdiction and (ii) taking into account the CFTC segregation 
requirements and investment restrictions applicable to FCMs' customer 
funds which constitutes a relevant and appropriate legal framework 
consistent with the requirements of Exchange Act Rule 17Ad-
22(e)(1).\52\
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    \51\ 17 CFR 240.17Ad-22(e)(1).
    \52\ 17 CFR 240.17Ad-22(e)(1).
---------------------------------------------------------------------------

B. Clearing Agency's Statement on Burden on Competition

    Section 17A(b)(3)(I) of the Act requires that the rules of a 
clearing agency not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.\53\ LCH SA does 
not believe the Proposed Rule Change would have any impact, or impose 
any burden, on competition. The Proposed Rule Change does not address 
any competitive issue. LCH SA operates an open access model, and the 
Proposed Rule Change will have no effect on this model.
---------------------------------------------------------------------------

    \53\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

C. Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants or Others

    Written comments relating to the proposed rule change have not been 
solicited or received. LCH SA will notify the Commission of any written 
comments received by LCH SA.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) by order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-LCH SA-2023-005 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to file number SR-LCH SA-2023-005. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for website viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE, 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of LCH SA and on LCH 
SA's website at: https://www.lch.com/resources/rulebooks/proposed-rule-changes. Do not include personal identifiable information in 
submissions; you should submit only information that you wish to make 
available publicly. We may redact in part or

[[Page 46232]]

withhold entirely from publication submitted material that is obscene 
or subject to copyright protection. All submissions should refer to 
File Number SR-LCH SA-2023-005 and should be submitted on or before 
August 9, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\54\
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    \54\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023-15257 Filed 7-18-23; 8:45 am]
BILLING CODE 8011-01-P