[Federal Register Volume 89, Number 72 (Friday, April 12, 2024)]
[Notices]
[Pages 25906-25908]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-07749]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99922; File No. SR-LCH SA-2023-007]


Self-Regulatory Organizations; LCH SA; Order Instituting 
Proceedings To Determine Whether To Approve or Disapprove a Proposed 
Rule Change Relating to Liquidity Risk Modelling Framework

April 8, 2024.

I. Introduction

    On December 22, 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 SR-LCH SA-2023-007 (``Proposed Rule Change'') pursuant to 
section 19(b) of the Securities Exchange Act of 1934 (``Exchange Act'') 
\1\ and Rule 19b-4 \2\ thereunder to amend its Liquidity Risk Modelling 
Framework (the ``Framework''). The Proposed Rule Change was published 
for public comment in the Federal Register on January 11, 2024.\3\ The 
Commission has received no comments regarding the Proposed Rule Change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Exchange Act Release No. 99277 (Jan. 5, 2024), 89 FR 1952 
(Jan. 11, 2024) (File No. SR-LCH SA-2023-007) (``Notice'').
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    On February 21, 2024, pursuant to Section 19(b)(2) of the Exchange 
Act,\4\ the Commission designated a longer period within which to 
approve, disapprove, or institute proceedings to determine whether to 
approve or disapprove the Proposed Rule Change, until April 10, 
2024.\5\ The Commission is instituting proceedings, pursuant to section 
19(b)(2)(B) of the Exchange Act,\6\ to determine whether to approve or 
disapprove the proposed rule change.
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    \4\ 15 U.S.C. 78s(b)(2).
    \5\ Exchange Act Release No. 99569 (Feb. 21, 2024), 89 FR 14538 
(Feb. 27, 2024) (File No. SR-LCH SA-2023-007).
    \6\ 15 U.S.C. 78s(b)(2)(B).
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II. Summary of the Proposed Rule Change

    LCH SA is a clearing agency that offers clearing of, among other 
things, credit-default swaps (``CDS'').\7\ LCH SA is registered with 
the Commission for clearing CDS that are security-based swaps and with 
the Commodity Futures Trading Commission for clearing CDS that are 
swaps. As part of its clearing business, LCH SA maintains cash and 
other liquid financial resources to meet its financial obligations. The 
Framework and other procedures describe how LCH SA maintains these 
resources and manages its liquidity risk, meaning the risk that LCH SA 
will not have enough liquid financial resources to meet its financial 
obligations.\8\ The Framework specifically describes how LCH SA's 
Collateral and Liquidity Risk Management department ensures that LCH SA 
has enough cash available to meet any financial obligations, both

[[Page 25907]]

expected and unexpected, that may arise over the liquidation period for 
each of LCH SA's clearing services.
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    \7\ Capitalized terms used but not defined herein have the 
meanings specified in the LCH SA Rule Book or Framework as 
applicable.
    \8\ LCH SA, a subsidiary of LCH Group and an indirect subsidiary 
of the London Stock Exchange Group plc (``LSEG''), manages its 
liquidity risk pursuant to, among other policies and procedures, the 
Group Liquidity Risk Policy and the Group Liquidity Plan applicable 
to each entity within LCH Group. In addition to its CDSClear 
service, LCH SA provides clearing services in connection with cash 
equities and derivatives listed for trading on Euronext 
(EquityClear), commodity derivatives listed for trading on Euronext 
(CommodityClear), and tri-party Repo transactions (RepoClear).
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    The Framework describes LCH SA's liquidity in terms of sources and 
needs. The Framework lists various sources of liquidity for LCH SA, 
such as cash and non-cash collateral provided by Clearing Members to 
meet their margin and default fund requirements. With respect to needs 
for liquidity, the Framework places these into three broad categories: 
(i) those arising from LCH SA's business-as-usual operations; (ii) 
those arising from Clearing Members' defaults; and (iii) those arising 
from the default of LCH SA's interoperating central counterparty 
(``CCP'').
    The purpose of the Proposed Rule Change is to make a variety of 
updates to the Framework. In general, these changes will: (a) revise 
the manner in which settlement obligation liquidity requirements are 
calculated; (b) revise the way LCH SA determines the potential value of 
liquidity obtained from pledging securities to the Banque de France; 
(c) extend the length of time for which LCH SA must maintain liquidity 
resources sufficient to meet its liquidity requirements; (d) include 
the liquidity needs generated by the expiration of physically settled 
stock futures in determining overall liquidity needs; and (e) require 
LCH SA, in calculating its required liquidity resources, to consider 
that Clearing Members may switch from depositing non-cash collateral in 
a Full Title Transfer Account to depositing non-cash collateral instead 
in a Single Pledged Account.

III. Proceedings To Determine Whether To Approve or Disapprove the 
Proposed Rule Change and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to section 
19(b)(2)(B) of the Exchange Act to determine whether the Proposed Rule 
Change should be approved or disapproved.\9\ Institution of proceedings 
is appropriate at this time in view of the legal and policy issues 
raised by the Proposed Rule Change. Institution of proceedings does not 
indicate that the Commission has reached any conclusions with respect 
to any of the issues involved. Rather, the Commission seeks and 
encourages interested persons to comment on the Proposed Rule Change, 
which would provide the Commission with arguments to support the 
Commission's analysis as to whether to approve or disapprove the 
Proposed Rule Change.
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    \9\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to section 19(b)(2)(B) of the Exchange Act,\10\ the 
Commission is providing notice of the grounds for disapproval under 
consideration. The Commission is instituting proceedings to allow for 
additional analysis of, and input from commenters with respect to, the 
Proposed Rule Change's consistency with section 17A of the Exchange Act 
\11\ and the rules thereunder, including the following provisions:
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    \10\ Id.
    \11\ 15 U.S.C. 78q-1.
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     Section 17A(b)(3)(F) of the Exchange Act,\12\ which 
requires, among other things, that the rules of a clearing agency are 
designed to promote the prompt and accurate clearance and settlement of 
securities transactions and derivative agreements, contracts, and 
transactions; 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; to foster cooperation and coordination with persons 
engaged in the clearance and settlement of securities transactions; 
and, in general, to protect investors and the public interest;
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    \12\ 15 U.S.C. 78q-1(b)(3)(F).
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     Rule 17Ad-22(e)(7) under the Exchange Act,\13\ which 
requires, in part, that a covered clearing agency establish, implement, 
maintain, and enforce written policies and procedures reasonably 
designed to effectively measure, monitor, and manage the liquidity risk 
that arises in or is borne by the covered clearing agency, including 
measuring, monitoring, and managing its settlement and funding flows on 
an ongoing and timely basis, and its use of intraday liquidity; and
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    \13\ 17 CFR 240.17Ad-22(e)(7).
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     Rules 17Ad-22(e)(7)(vi)(B) and (C) under the Exchange 
Act,\14\ which requires that a covered clearing agency establish, 
implement, maintain, and enforce written policies and procedures 
reasonably designed to determine the amount and regularly testing the 
sufficiency of the liquid resources held for purposes of meeting the 
minimum liquid resource requirement under Rule 17Ad-22(e)(7)(i) by, at 
a minimum: (i) conducting a comprehensive analysis on at least a 
monthly basis of the existing stress testing scenarios, models, and 
underlying parameters and assumptions used in evaluating liquidity 
needs and resources, and considering modifications to ensure they are 
appropriate for determining its identified liquidity needs and 
resources in light of current and evolving market conditions and (ii) 
conducting a comprehensive analysis of the scenarios, models, and 
underlying parameters and assumptions used in evaluating its liquidity 
needs and resources more frequently than monthly when the products 
cleared or markets served display high volatility or become less 
liquid, when the size or concentration of positions held by its 
participants increases significantly, or in other appropriate 
circumstances described in such policies and procedures that a covered 
clearing agency establish, implement, maintain, and enforce written 
policies and procedures reasonably designed to identify, monitor, and 
manage risks related to any link the covered clearing agency 
establishes with one or more other clearing agencies, financial market 
utilities, or trading markets.
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    \14\ Id.
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IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the Proposed Rule Change. In particular, the Commission invites 
the written views of interested persons concerning whether the Proposed 
Rule Change is consistent with section 17A(b)(3)(F) \15\ and Rules 
17Ad-22(e)(7), and (e)(7)(vi)(B) and (C) \16\ of the Exchange Act, or 
any other provision of the Exchange Act, or the rules and regulations 
thereunder. Although there do not appear to be any issues relevant to 
approval or disapproval that would be facilitated by an oral 
presentation of views, data, and arguments, the Commission will 
consider, pursuant to Rule 19b-4(g) under the Exchange Act,\17\ any 
request for an opportunity to make an oral presentation.\18\
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    \15\ 15 U.S.C. 78q-1(b)(3)(F).
    \16\ 17 CFR 240.17Ad-22(e)(7).
    \17\ 17 CFR 240.19b-4(g).
    \18\ Section 19(b)(2) of the Exchange Act grants to the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
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    The Commission asks that commenters address the sufficiency of LCH 
SA's statements in support of the Proposed Rule Change, which are set 
forth in the Notice, in addition to any other comments they may wish to 
submit about the Proposed Rule Change.
    Comments may be submitted by any of the following methods:

[[Page 25908]]

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-2023-007 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-2023-007. 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 
a.m. and 3 p.m. Copies of such 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 withhold entirely from publication 
submitted material that is obscene or subject to copyright protection.
    All submissions should refer to file number SR-LCH SA-2023-007 and 
should be submitted on or before May 3, 2024. Rebuttal comments should 
be submitted by May 17, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(31).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-07749 Filed 4-11-24; 8:45 am]
BILLING CODE 8011-01-P