[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