[Federal Register Volume 89, Number 101 (Thursday, May 23, 2024)]
[Notices]
[Pages 45717-45723]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-11270]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100169; File No. SR-LCH SA-2024-003]


Self-Regulatory Organizations; LCH SA; Notice of Filing of 
Proposed Rule Change Relating to the Terms of Reference of the Board 
and Sub Committees

May 17, 2024.
    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 May 6, 2024, 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 
described in Items I, II and III below, which Items have been primarily 
prepared 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 certain of its governance documents, 
including the Terms of Reference (``ToR'') of: (a) the Technology, 
Security and Resilience Committee; (b) the Audit Committee; (c) the 
Risk Committee; and (d) the Board of Directors (``Board''). Minor 
conforming amendments will also be made to the ToR of the Nomination 
Committee of the Board (collectively, the ``Proposed Rule Change'').

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
    The Proposed Rule Change is being adopted primarily in response to 
a request from its French regulatory authority, the Authorit[eacute] de 
Contr[ocirc]le Prudentiel et de R[eacute]solution (``ACPR''), that LCH 
SA: (a) more clearly define the role of the Technology, Security and 
Resilience Committee by focusing its areas of expertise on technical 
subjects related to information systems, technology and cyber security; 
(b) more clearly define the role of the Audit Committee in areas 
relating to operational and resilience risk management; and (c) 
strengthen the Risk Committee's supervision of certain information 
technology and resilience risk matters. The ToR of the Board is also 
being amended as part of the Proposed Rule Change, to remove the 
requirement to translate minutes into French prior to Board meetings 
and to clarify that the Board is responsible for approving the Wind-
Down Plan (``WDP''). Other changes are being made to conform the ToRs 
with LCH Group terminology, including replacing the term ``Chairman'' 
throughout the ToR of the Technology, Security and Resilience 
Committee, the Audit Committee and the Risk Committee with the term 
``Chair'', clarifying that ``Group'' means ``LCH Group'' in the ToR of 
the Technology Security and Resilience Committee (renamed Operational 
Resilience Committee, as discussed below) (article 5.1) and the Risk 
Committee (articles 1.1 and 2.5), and replacing the term ``Group'' with 
``LCH'' in articles 14.1 and 16.4 of the Risk Committee ToR. LCH SA is 
also making a number of non-substantive clarifying changes to the 
various documents included as an Exhibit 5 to this filing. Importantly, 
there will be no change in the proportion of independent directors \3\ 
or the number of directors representing members and participants.
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    \3\ The ToR of the LCH SA Board defines an independent director 
as a director who satisfies applicable Regulatory Requirements, 
i.e., any regulation or requirement of applicable law or of any 
applicable regulatory body, regarding independent directors, and who 
is appointed in accordance with the Nomination Committee ToR.
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i. The Technology, Security and Resilience Committee
    The Technology, Security and Resilience Committee has been renamed 
the Operational Resilience Committee. In addition, Articles 15 and 20 
of the ToR of the Board and Section 3.3.8 of the ToR of the Audit 
Committee have been amended to reflect this change in the name of the 
Operational Resilience Committee. This change has been made to better 
clarify the scope of the committee's responsibility. As noted above, 
the committee will focus its areas of expertise on technical subjects 
related to information systems, technology and cyber security.
    To effect this change in focus, Section 1.2 of Article 1, Purpose, 
will be amended by replacing reference to ``technical, security, 
operational resilience and cyber risks'' with ``operational 
resilience'' to reflect that the committee shall determine whether 
management has put in place adequate strategies and plans, which 
include appropriate management of operational resilience. Section 1.1. 
will also be amended to state that the Committee shall represent the 
interests of the Board in the sound management of Operational 
Resilience to ensure that technology security, cyber security and 
operational resilience strategies, investments and outcomes support the

[[Page 45718]]

mission, values, and strategic goals of LCH SA. Section 1.2 will also 
be amended to clarify that the committee will provide assurance that 
the company operates within the risk appetite ``set by the Board'', as 
per current practice, the Board is responsible for setting the risk 
appetite. Finally, Section 1.2 will be amended by adding a new sentence 
stating the committee will receive a regular assessment of operational 
resilience risks to reflect current practice.
    Article 1 of the ToR, Purpose, will also be amended by adding a new 
Article 1.3 to describe how the committee will contribute to the review 
of certain operational resilience policies. The proposed rule change is 
adding this because the committee will be the forum for discussion on 
resilience risk matters and will be the advisor to the Risk Committee 
with regard to these matters. For the purposes of this addition of 
Article 1.3, ``resilience risk,'' ``operational resilience'' and 
``operational resilience risk'' all pertain to operational resilience 
risk matters for which the committee will be the forum for 
discussion.\4\ Furthermore, Article 1.3 will specify that the committee 
will review, prior to presentation to the Risk Committee for review and 
recommendation to the Board, the following Operational Resilience 
policies: (a) Technology Risk; (b) Business Continuity Risk; (c) 
Information Security and Cyber Risk; (d) Operational Risk; (e) Third 
Party (Outsourcing) Risk; and (f) Physical Security Risk. Article 1.3 
also provides that the committee will be notified by the owner of the 
policies of any breaches or waivers.
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    \4\ As stated in the Risk Governance Framework (``RGF''), the 
operational resilience risks are the risks associated with the 
ability of LCH to prevent, adapt, respond to, recover and learn from 
operational disruptions. This includes risks associated with 
maintaining the security of LCH from a cyber and a physical 
perspective, Data Management and Third-Party Risks as well as 
resilient Operational Processes.
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    Further, a new Article 1.4.4 will be added to provide that the 
committee will also review LCH SA's ongoing outsourcing and third-party 
risk management arrangements because these arrangements fall under the 
ambit of the Operational Resilience Committee as redefined.\5\ Finally, 
renumbered Article 1.5 will be amended to provide that the committee 
must keep itself informed of changes in guidance from London Stock 
Exchange Group as well as from LCH Group. This amendment reflects the 
current required practice that the committee keep informed of changes 
in guidance from both LCH Group and London Stock Exchange Group.
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    \5\ The remaining provisions in Article 1 will be renumbered to 
accommodate these additions. Technical amendments have also been 
made throughout the Operational Resilience Terms of Reference to 
reflect the change in the name of the committee and its revised 
focus.
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    Consistent with the committee's responsibility to focus its areas 
of expertise on technical subjects related to information systems, 
technology and cyber security, Article 2 of the ToR, Structure and 
Membership, will be amended to revise Article 2.1.2 to provide that 
members of the committee must have the relevant expertise required for 
the committee to function properly as well as recent and relevant 
experience in the operations of LCH Group. Article 2.1.2 currently only 
provides that members of the committee ``shall ideally have 
significant, recent and relevant experience of the operations of LCH 
and its dependence on technology[.]''. Article 2.1.3 will also be 
revised to specify that, as considered appropriate by the committee, 
experts in information technology, security, resilience matters and 
more generally on operational resilience matters may attend committee 
meetings in a non-voting capacity.
    Article 4 of the ToR, Authority and Responsibilities, will be 
amended to remove current Article 4.2.10, which provides that the 
committee will review and receive reports, as appropriate, on 
operations and agreed metrics in conjunction with the Audit Committee, 
in order to avoid any duplication and overlap with the Audit Committee. 
In addition, current Article 4.2.10 is redundant with Article 4.2.9 
with respect to the committee's responsibility to receive reports from 
the Audit Committee with respect to reviews and assessment of LCH SA's 
operations and technology functions. Furthermore, LCH SA determined 
there is no equivalent provision to current Article 4.2.10 in the Audit 
Committee TOR. In the event of audit findings in the area of 
operational resilience, the committee would likely monitor progress 
against these actions noting that the Chair of the committee is also a 
member of the Risk Committee. Current Article 4.2.11 will be renumbered 
to new Article 4.2.10 and revised to state the committee will review 
and receive reports ``in relation to ongoing'' technology outsourcing. 
LCH SA is proposing to remove reference to ``on'' to clarify the types 
of reports the committee receives. Moreover, new Articles 4.2.13, 
4.2.14 and 4.2.15 will be added to reflect the current practices 
comprising the committee's overall mandate for the review of 
operational resilience matters.\6\ Specifically:
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    \6\ The remaining provisions in Article 4.2 will be renumbered 
to accommodate these additions.
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     Article 4.2.13 will confirm the committee's responsibility 
to provide advice to the Risk Committee on specific operational 
resilience risk-related matters as deemed appropriate, including in 
cases of potential member impact;
     Article 4.2.14 will provide that the committee will be 
responsible for reviewing or recommending for approval to the Risk 
Committee, Detailed Operational Risk Assessments (``DORA'') \7\ with 
significant elements relating to Technology, Cyber or other Operational 
Resilience, in accordance with the Operational Risk Policy; \8\ and
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    \7\ DORAs are produced by the relevant business/function (first 
line of defense) and reviewed by the LCH Group Risk Function (second 
line of defense). The assessment is required ahead of implementing 
new product initiatives, strategic projects or significant changes 
presenting operational risks that are novel or could have the 
potential to impact the current operational risk appetite assessment 
or platform resiliency.
    \8\ Annex E of the Operational Risk Policy provides that the 
committee will recommend the DORA to the Risk Committee for its 
approval, after which the Board will be notified. As discussed 
below, Article 11.3 of the Risk Committee ToR will also be amended 
to note this point.
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     Article 4.2.15 will provide that the committee will 
receive reports of Operational Risk Assessments related to cloud 
initiatives sent by the applicable risk team.
    In addition, Article 4.4 of the ToR will be amended to provide that 
the Chair of the committee will be a standing member of the Risk 
Committee as well as the Audit Committee. Current Article 4.4 provides 
that the Chair of the committee will be a standing member of the Audit 
Committee but not the Risk Committee. Rather, the Chair of the 
committee may be invited to attend meetings of the Risk Committee only 
in a non-voting capacity. This change is being made to enhance the role 
of the committee as an advisor to the Risk Committee.\9\
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    \9\ Consistent with the amendment to Article 4.4, a new Article 
1.1.2 of the Risk Committee ToR will be added to provide that one of 
the independent non-executive directors of the Risk Committee must 
be the Chair of the Operational Resilience Committee.
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    Finally, Article 7.3 of the ToR, which provides that the committee 
may report any disagreements between the committee and the Board that 
cannot be resolved at the Board level to the shareholders through LCH 
SA's annual report, will be removed. The Board determined that this 
Article is applicable only to the Audit Committee ToR.

[[Page 45719]]

ii. The Audit Committee
    Consistent with the amendments to the Operational Resilience 
Committee ToR described above, the Audit Committee ToR will be amended 
to define more clearly the responsibilities of the Audit Committee. In 
this regard, Article 1 of the ToR, Purpose, will be amended as follows:
     Article 1.3.5 will be revised to provide that the 
committee will assist the Board in fulfilling its responsibilities 
relating to reviewing LCH SA's Resilience and Enterprise Risk 
Management reports. The Enterprise Risk Management reports are 
currently provided to the committee and have since been enhanced to 
provide additional detail for the committee to review as part of its 
responsibility to assist the Board in fulfilling its responsibilities;
     Article 1.3.6 will be revised to remove the committee's 
current responsibility to review Resilience Risk matters, since this 
activity is now the responsibility of the Operational Resilience 
Committee. The committee will retain responsibility of reviewing LCH 
SA's internal control environment;
     Article 1.4 will be revised to clarify that the committee 
shall keep informed of changes in the law and regulations applicable to 
the specific matters for which the committee is responsible. Specific 
reference to the Audit Policy is being removed, as the committee's 
responsibility to keep information of changes in the law and 
regulations applicable to the specific matters for which the committee 
is responsible includes the Audit Policy; and
     Article 1.5 will be revised to provide that nothing in the 
ToR will diminish the responsibility of the Board to maintain ongoing 
review of the matters described in the ToR rather than LCH SA's audit 
policy more broadly. As noted in the changes to Article 1.4, the 
Board's responsibility to maintain ongoing review of the matters listed 
in Article 1 includes the Audit Policy.
     Article 2.3.2 will be removed to align with Article 2.2.2 
of the ToR of the Audit Committee for LCH Ltd. because that article 
already specifies that the same person can be the chair of both 
committees.
    In addition, Article 3 of the ToR, Authority and Responsibilities, 
will be amended as follows:
     A new Article 3.3.4(a) will be added to provide that the 
committee will approve the Compliance policies and be informed of any 
breaches. This addition reflects an existing process by the committee 
and is being added for transparency; \10\
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    \10\ The remaining provisions in Article 3.3.4 will be 
renumbered to accommodate these additions.
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     Current Article 3.3.4(e), which requires the committee to 
review the performance of LCH SA's Chief Compliance Officer will be 
removed, because this responsibility is now assumed by the Remuneration 
Committee;
     Article 3.3.5(b) will be revised to add that the committee 
will be notified of outside appetite financial and resilience risks in 
addition to reviewing breaches of LCH SA's Risk Governance Framework. 
This addition will provide greater transparency to the committee 
regarding outside appetite financial and resilience risks;
     Article 3.3.6(a)(iii) will be revised to remove the 
requirement that the committee receive annually reports required by 
Articles 258 to 266 of the Order of 3 November 2014 on the internal 
control of banking sector companies, payment services and investment 
services and will require, instead, that the committee receive annually 
reports as required by law from time to time. This revision ensures the 
committee receives reports as required by all applicable laws and 
regulations, rather than a subset; and
     Current Article 3.3.6(a)(iv), requiring the committee to 
review at least annually the provisions for business continuity and 
disaster recovery and the assessment of the effectiveness of the 
arrangements in place will be removed, since this activity is now the 
responsibility of the Operational Resilience Committee and is reflected 
in the Operational Resilience Committee ToR as a recurrent 
responsibility, as required under EMIR.\11\
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    \11\ In addition, Article 2.3, Committee Chair, will be amended 
to remove Article 2.3.2, which provides that the Chair may also be 
appointed the Chair of the Audit Committee of LCH Limited. This 
change is being made to conform the Audit Committee ToR to LCH Group 
requirements.
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iii. The Risk Committee
    As noted above, the ToR of the Risk Committee will be amended to 
strengthen the committee's supervision of certain information 
technology and resilience risk matters. Other amendments are intended 
to conform the Risk Committee ToR to LCH Group requirements. In this 
latter regard, Article 1 of the ToR, Composition, will be amended (a) 
to add a new Article 1.1.2 to provide that one of the non-executive 
directors of the Risk Committee must be the Chair of the Operational 
Resilience Committee, (b) to revise the proviso to Article 1.1 to 
clarify that no User or Client representative of the Risk Committee may 
be an employee of LCH Group or its subsidiaries and (c) to add 
operational risk management as one of the areas of expertise and 
experience in Article 1.1.3 with respect to Users, as such term is 
defined in the committee ToR. In addition, the term ``Group'' is being 
replaced by ``LCH'' in Articles 14.1 and 16.4 to clarify the entity 
being referred to.
    In addition, Article 1.2 of the ToR, which identifies the 
individuals who may be invited to attend committee meetings in a non-
voting capacity, will be amended to: (a) remove Article 1.2.4, which 
provides that the Chief Risk Officer of LCH Group may attend committee 
meetings, because that position has been retired; \12\ (b) remove 
Article 1.2.5, which provides that the Chief Executive Officer of LCH 
Group may attend committee meetings, because the Chief Executive 
Officer of LCH SA is already listed as the appropriate ex officio non-
voting party under Article 1.2.2; (c) revise renumbered Article 1.2.4 
to provide that LSEG's Chief Risk Officer (or nominee) may attend 
committee meetings, so as to ensure that the Risk Committee has 
appropriate oversight of all risks pursuant to the committee's ToR; and 
(d) revise renumbered Article 1.2.6 to provide that such other 
employees of LCH SA, rather than LCH Group, may attend committee 
meetings, as considered appropriate by the Committee Chair. This 
revision reflects that LCH SA employees will likely have the relevant 
background and expertise to participate in meetings for which LCH SA 
risk matters are discussed. LCH SA is also clarifying that the 
Committee Chair rather than the entire Committee shall determine the 
appropriateness of including LCH SA employees in attendance, 
considering LCH SA employees will only attend from time to time at a 
given meeting in a non-voting capacity for a particular agenda item(s) 
which may be relevant to them.
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    \12\ Because the LCH Group Chief Risk Officer position has been 
retired, Article 2 of the ToR of the Nomination Committee, Board, 
will be revised to amend Article 2.3 to provide that the term 
``Executive Directors'' will no longer include the Chief Risk 
Officer of LCH Group. The Chief Risk Officer of LSEG, or such other 
LCH or LSEG executive as proposed by the LCH Group Chief Executive 
Officer, may also serve on the Board but will not be defined as an 
``Executive Director''.
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    Where expertise other than the specialty of external members is 
required, Article 1.6 of the ToR currently permits external members of 
the Risk Committee to consult internally prior to Risk Committee 
Meetings.

[[Page 45720]]

Article 1.6 of the ToR will be amended to clarify that external members 
may only consult other members within their respective firms in a 
manner consistent with the restrictions set out in the confidentiality 
provisions signed by such external member.
    Further, Article 2 of the ToR, Conduct of Meetings, will be amended 
to remove reference to the LCH Group Board in Article 2.9 and to remove 
Article 2.10 in its entirety, which provides that LCH SA's Chief Risk 
Officer will report to the Board of LCH Group on the discussions, 
decisions and recommendations of the committee. These revisions are 
being made to clarify that the committee reports discussions, decisions 
and recommendations of the committee to the LCH SA Board, as the Board 
of LCH Group ordinarily does not consider such matters. Likewise, the 
Committee Secretary will make minutes available to the LCH SA Board and 
Audit Committee Chair. Finally, Article 10 of the ToR, Payment and 
Money Settlement Arrangements, Bank Exposures, Liquidity Risk and 
Collateral, will be revised to amend renumbered Article 10.7.4, which 
currently provides that breaches of LCH SA's Collateral Risk Policy or 
Investment Risk Policy must be (a) notified to LCH SA's Chief Risk 
Officer and Head of CaLM; (b) signed off by LCH SA's Chief Risk Officer 
or the Head of CaLM, and (c) reported to . . . the Chief Executive 
Officers of both LCH SA and LCH Group, and the Audit Committee of LCH 
SA. As revised, such breaches (x) must be signed off only by LCH SA's 
Chief Risk Officer, and (y) must be reported to . . . the Chief 
Executive Officer of only LCH SA, and the Audit Committee. This change 
is being made to reflect that these policies are owned by the Chief 
Risk Officer who is responsible for signing off as part of their second 
line function. LCH SA is also proposing to remove reporting breaches to 
the Chief Executive Officer of LCH Group as this is no longer a 
functional role.
    To strengthen the committee's supervision of certain information 
technology and resilience risk matters, Article 3 of the ToR, Risk 
Appetite and Scope, will be amended to add a new Article 3.2 of the ToR 
to clarify that the risks within the existing scope of the Risk 
Committee are Financial and Model Risks and Operational Resilience, as 
defined in the LCH Risk Governance Framework (RGF). Other provisions 
clarifying the Risk Committee's responsibilities are made throughout 
the ToR. In particular:
     Article 4, Executive Risk Committee, will be amended to 
revise Article 4.2 to clarify that the committee will receive detailed 
reports from the Executive Risk Committee only with regard to the risks 
defined within the scope of Article 3.2.\13\ Pursuant to new Article 
3.2, the risks within the scope of the committee are Financial and 
Model Risks, and Operational Resilience Risks.
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    \13\ The committee will receive a detailed risk report from the 
Executive Risk Committee which includes, among other things, the 
risk profile of the company. Reference to ``the Group'' has been 
removed to reflect the recent change in corporate structure.
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     Article 6, CCP Membership, will be revised to add a new 
Article 6.4 to reflect the current practice that the committee be 
notified of the outcome of the annual independent validation of the 
counterparty credit scoring model in accordance with the Model 
Governance, Validation and Review Policy.\14\
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    \14\ The remaining provisions in Article 6 will be renumbered to 
accommodate this addition.
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     Article 7, New Clearing Activity: New Markets and 
Contracts, will be revised to add a new Article 7.5 to reflect the 
current practice that the committee review on an annual basis a report 
outlining the compliance of all markets and products against the 
criteria defined in the Contract and Market Acceptability Policy.\15\ 
In addition, renumbered Article 7.7.1 will be revised to reflect the 
current practice that the Chief Executive Officer may approve new trade 
venues which present no novel risk features and require no amendment of 
risk controls, subject to notification to the committee.
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    \15\ In addition, Article 7.4 will be revised to note that the 
name of the risk policy on the eligibility of new products accepted 
for clearing has been changed to the Contract and Market 
Acceptability Policy.
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     Article 8, Margining, will be revised to clarify in 
Article 8.2 the committee's current practice of reviewing the initial 
margin policies contained within the Financial Resource Adequacy Policy 
and to add a new Article 8.4 to reflect the current practice that the 
committee be notified of the outcome of the annual independent 
validation of all margin models in accordance with the Model 
Governance, Validation and Review Policy. This revision also aligns 
with the reporting process in the Model Governance, Validation and 
Review Policy.
     Article 9, Default Fund, Default Rules and Default 
Procedures, will be revised to (a) add reverse stress testing reports 
as a component of the committee's review of the adequacy of the default 
funds in Article 9.1; (b) add a new Article 9.4 to reflect the current 
practice that the committee be notified of the outcome of the annual 
validation of all stress testing models used to size the default funds 
in accordance with the Financial Resources Adequacy Policy; and (c) add 
a new Article 9.7 to reflect the current practice that the committee 
review default management fire drill exercise reports to assess LCH 
SA's default management process.\16\ Revision (a) of Article 9 
clarifies the specific stress testing reports utilized by the 
committee. Each of revisions (b) and (c) of Article 9 establish the 
existing notification and reporting processes done as part LCH SA's 
default management processes in the committee's ToR.
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    \16\ The remaining provisions in Article 9 will be renumbered to 
accommodate the addition of Article 9.4 and Article 9.7.
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     Article 10, Payment and Money Settlement Arrangements, 
Bank Exposures, Liquidity Risk and Collateral, will be revised to 
reflect LCH SA's current liquidity risk management practices by: (a) 
adding a new Article 10.3 to provide that the committee will review, on 
an annual basis (or more frequently if deemed necessary), LCH SA's 
Liquidity Plan detailing how the standards contained in the Liquidity 
Risk Policy are applied, to consider proposed changes and to make 
recommendations to the Board for approval; \17\ (b) adding a new 
Article 10.4 to provide that the committee will be notified of the 
outcome of the annual independent validation of the liquidity risk 
model, in accordance with the Liquidity Risk Policy; (c) amending 
Article 10.5 to provide that the committee will consider the addition 
of new collateral types and associated risk controls and to recommend 
them to the Board for approval; (d) adding a new Article 10.6 to 
provide that the committee will be notified of the outcome of the 
annual validation of the collateral haircut model in accordance with 
the Collateral Risk Policy; \18\ and (e) adding two proposed changes in 
the sub-paragraph 10.7.4 in order to remove the power of the Head of 
CaLM (first line/business) to sign off on breaches, because only the 
CRO should do this as part of their second line function. The second 
change is to remove the LCH Group CEO as a receiver of a breach report, 
as this role is no longer a functional one.
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    \17\ The remaining provisions in Article 10 will be renumbered 
to accommodate the addition of Article 10.3 and Article 10.4 and 
Article 10.6, below.
    \18\ See supra discussion on revisions to renumbered Article 
10.7.4.
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     Article 11, currently titled Operational Risk Management, 
will be renamed Operational Resilience Risk, and will be revised to 
reflect the renaming of Operational Resilience Committee and the 
Operational Resilience Risk Policies and to align

[[Page 45721]]

with the ToR of the Operational Resilience Committee. Specifically, LCH 
SA proposes to: (a) amend Article 11.1 to provide that the committee 
will review, on an annual basis (or more frequently if deemed 
necessary), LCH SA's Operational Resilience Risk Policies, following 
review by the Operational Resilience Committee, and to make 
recommendations to the Board for approval; (b) add a new Article 11.2 
to provide that the committee will inform the Board in a timely manner 
of any new risk affecting the resilience of LCH SA; \19\ and (c) amend 
Article 11.3 to provide that the committee will review and approve the 
recommendations of the Operational Resilience Committee in relation to 
Detailed Operational Risk Assessments for significant projects and new 
products, as required under LCH SA's Operational Risk Policy, and for 
notifying the Board of the same.
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    \19\ Current Article 11.2, which provides that the Risk 
Committee, at the request of the Audit Committee, will review and 
provide advice on any aspect of LCH SA's operational risk management 
framework, will be removed, since this activity is now the 
responsibility of the Operational Resilience Committee.
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     A new Article 12, Model Governance and Procyclicality,\20\ 
will be added to provide that the committee will be responsible for: 
(a) reviewing annually (or more frequently if deemed necessary) LCH 
SA's Model Governance, Validation and Review Policy, to consider 
proposals for modification of those arrangements and to make 
recommendations to the Board for approval (Article 12.1); (b) 
reviewing, in accordance with the Model Governance, Validation and 
Review Policy, at least annually and upon material change, reports 
prepared by independent model experts confirming the ongoing 
suitability of LCH SA's financial risk models (Article 12.2); (c) 
reviewing annually (or more frequently if deemed necessary) LCH SA's 
Procyclicality Risk Policy, to consider proposals for modification of 
those arrangements and to make recommendations to the Board for 
approval; and (d) reviewing, at least annually, reports confirming that 
LCH SA's risk models do not operate in a procyclical manner. The 
revisions are being made to align with the ToR of the Risk Committee of 
LCH Ltd. and to reflect LCH SA's current practice.
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    \20\ The remaining provisions in Articles will be renumbered to 
accommodate the addition of new Article 12.
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     Renumbered Article 13, Regulatory Issues, will be revised 
to add a new Article 13.2 to reflect the current practice that the 
committee (a) review, on an annual basis (or more frequently if 
necessary), LCH SA's Recovery Plan and Wind Down Plan, (b) consider 
proposals for modification of these arrangements, and (c) make 
recommendations to the Board for approval. In addition, renumbered 
Article 13.3 will be revised to clarify the committee shall consider 
any issue or new arrangements relating to the outsourcing of functions 
that may impact the risk management of the CCP. This revision to 
Article 13.3 reflects the committee's responsibility to consider the 
risk impacts of new outsourcing arrangements, as well as any new or 
existing issues and reflects LCH SA's current practice related to 
enhancements made to LCH SA's third-party risk management processes.
     Renumbered Article 16, Regular Reports and Notifications, 
will be amended to simplify the description of the management 
information to be provided by the Chief Risk Officer. Specifically, a 
new Article 16.1 will be added to provide that the committee will 
receive management information from LCH SA's Chief Risk Officer on the 
assessment of all financial, model and operational resilience risks 
including any breaches or waivers granted, and will inform the Board in 
a timely manner of any new significant risk change affecting the 
resilience of LCH SA.\21\ Further, Article 16.2 will be revised to 
provide that management information will cover recent developments and 
material issues related to Financial and Model Risks and Operational 
Resilience Risks.
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    \21\ Further, former Articles 15.1.1-15.1.8, which set out 
specific areas on which the committee would receive reports, have 
been removed.
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     Article 20.2 is being amended to correct the 
responsibility for providing information to the committee about the 
remuneration structure of the company from the risk management 
department to the human resources department. This correction reflects 
how the committee currently assesses the potential affects the 
remuneration structure may have on the risk profile of LCH SA.
iv. The Board
    The ToR of the Board is also being amended to remove the 
requirement to translate minutes into French prior to Board meetings 
and to clarify that the Board is responsible for approving the Wind-
Down Plan (``WDP'').
    Article 3, Composition of the Board, is being amended to remove 
reference to the Chief Risk Officer of LCH Group. Currently, Article 3 
provides that the Directors shall include, among other categories, 
executive directors, including the CEO of LCH SA, the CEO of LCH Group, 
and an additional LCH executive, who may be but shall not be limited to 
the Chief Risk Officer of LCH Group. The proposed rule change would 
delete the phrase ``and an additional LCH executive, who may be but 
shall not be limited to the Chief Risk Officer of LCH Group.'' LCH SA 
is doing so because the Chief Risk Officer position of LCH Group has 
been retired. Under Article 3 as amended, the Directors shall include, 
among other categories, executive directors, meaning only the CEO of 
LCH SA and the CEO of LCH Group. The proposed rule change would also 
add, in a separate bullet point, another category of Director: an 
additional LCH or LSEG executive, who may be but shall not be limited 
to the chief risk officer of LSEG, as proposed by the CEO of LCH Group.
    Thus, Article 3, Composition of the Board, is being amended to 
clarify that the Board's executive Directors shall include the CEO of 
LCH SA and the CEO of LCH Group Holdings Limited. LCH SA is also 
proposing to clarify that the composition of the Board shall include an 
additional LCH or LSEG executive, who may be the LSEG Chief Risk 
Officer, as proposed by the CEO of LCH Group. The composition of the 
Board previously included an additional executive from LCH only. In 
addition, LCH SA is proposing to establish that the additional LCH or 
LSEG executive shall be proposed by the CEO of LCH Group.
    Article 10, Minutes, is being amended to strike out the requirement 
that meeting minutes be translated into French prior to being presented 
to the Board. LCH SA determined that translating meeting minutes from 
English to French is no longer required based on the composition of the 
Board and therefore unnecessary for purposes of minute taking.
    Article 12, Powers of the Board, is being amended to add under 
12(e) that with respect to risk management, the Board shall approve the 
WDP of LCH SA. LCA SA's internal procedures establish the governance 
process regarding the WDP, including the requirement that the Board 
approve the WDP. The amendment to the ToR to state that the Board shall 
approve the WDP will align with LCH SA's procedures.
2. Statutory Basis
    LCH SA has determined that the Proposed Rule Change is consistent 
with the requirements of section 17A of

[[Page 45722]]

the Act \22\ and regulations thereunder applicable to it. In 
particular, section 17A(b)(3)(C) of the Act provides that the rules of 
a clearing agency must assure fair representation of its members and 
participants in the selection of its directors and administration of 
its affairs.\23\ In addition, section 17A(b)(3)(F) of the Act provides, 
inter alia, that the rules of a clearing agency must be designed . . . 
to assure the safeguarding of securities and funds which are in the 
custody or control of the clearing agency for which it is 
responsible.\24\
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    \22\ 15 U.S.C. 78q-1.
    \23\ 15 U.S.C. 78q-1(b)(3)(C).
    \24\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Proposed Rule Change will not lead to any change in the 
proportion of independent directors or the number of directors 
representing members and participants. Therefore, the Board and the 
committees of the Board will continue to assure fair representation of 
its members and participants in the selection of its directors and the 
administration of its affairs as provided in section 17A(b)(3)(C) of 
the Act.\25\
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    \25\ 15 U.S.C. 78q-1(b)(3)(C).
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    The Proposed Rule Change is also consistent with the requirements 
of section 17A(b)(3)(F) of the Act.\26\ The revisions to the 
Operational Resilience Committee ToR include clarifications to the 
purpose of the committee to include appropriate management of 
operational resilience. This includes reviewing operational resilience 
policies, including, inter alia, the Operational Risk Policy, and the 
Operational Risk Management Framework. In addition, revisions to the 
Operational Resilience Committee's ToR include the additional 
responsibility that the committee review DORAs related to technology, 
cyber or other operational resilience matters, prior to recommending 
approval to the Risk Committee. Finally, the revisions to the 
Operational Resilience Committee ToR establish that the Chair of the 
committee shall be a standing member of the Risk Committee. This will 
provide increased transparency across both committees and ensure the 
Chair of the Operational Resilience Committee communicates any relevant 
operational resilience issues with the Risk Committee, as applicable.
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    \26\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Proposed Rule Change also includes revisions to the Risk 
Committee ToR as it pertains to operational resilience. Specifically, 
the Risk Committee ToR is being revised to reflect enhanced 
coordination between the Operational Resilience Committee and the Risk 
Committee as it pertains to the review of LCH SA's Operational Risk 
Policy. In addition, the Risk Committee ToR is also being revised to 
reflect that the Risk Committee will review and approve recommendations 
of the Operational Resilience Committee in relation to DORAs. Finally, 
the Risk Committee ToR is being revised to establish enhanced 
notifications and reporting to the committee. Specifically, the 
revisions provide that the Risk Committee will receive an assessment of 
all financial, model and operational resilience risks, and shall 
provide timely reporting to the Board of any significant changes in 
risk affecting the resilience of LCH SA.
    Based on the applicable revisions to the Operational Resilience 
Committee ToR and the Risk Committee ToR with respect to enhanced 
oversight, notification and reporting of operational resilience, LCH SA 
has determined that the Proposed Rule Change is consistent with the 
requirements of section 17A(b)(3)(F) of the Act.\27\
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    \27\ Id.
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    In addition, Commission Rule 17Ad-22(e)(2) requires each registered 
clearing agency to ``establish, implement, maintain and enforce written 
policies and procedures reasonably designed to provide for governance 
arrangements that: (i) are clear and transparent; (ii) clearly 
prioritize the safety and efficiency of LCH SA; (iii) support the 
public interest requirements in Section 17A of the Act applicable to 
LCH SA, and the objectives of owners and participants; (iv) establish 
that the Board and senior management have appropriate experience and 
skills to discharge their duties and responsibilities; (v) specify 
clear and direct lines of responsibility; and (vi) consider the 
interests of participants' customers . . . and other relevant 
stakeholders of the covered clearing agency.\28\
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    \28\ 17 CFR 240.17Ad-22(e)(2).
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    As discussed above, the Proposed Rule Change is being adopted 
primarily in response to a request from its French regulatory 
authority, the ACPR, that LCH SA: (a) more clearly define the role of 
the Operational Resilience Committee by focusing its areas of expertise 
on technical subjects related to information systems, technology and 
cyber security; (b) more clearly define the role of the Audit Committee 
in areas relating to operational and resilience risk management; and 
(c) strengthen the Risk Committee's supervision of certain information 
technology and resilience risk matters. The Proposed Rule Change also 
includes amendments to the ToR of the Board to remove the requirement 
to translate minutes into French prior to Board meetings and to clarify 
that the Board is responsible for approving the WDP. Finally, other 
changes are being made to conform the ToR to meet LCH Group 
requirements.
    By (a) more clearly defining the respective roles of the 
Operational Resilience Committee and Audit Committee, (b) strengthening 
the Risk Committee's supervision of certain information technology and 
resilience risk matters, and (c) confirming that the Proposed Rule 
Change will not lead to any change in the proportion of independent 
directors or the number of directors representing members and 
participants, the Proposed Rule Change enhances LCH SA's governance 
arrangements and assures that they (i) remain clear and transparent; 
(ii) clearly prioritize the safety and efficiency of LCH SA; (iii) 
continue to support the public interest requirements in section 17A of 
the Act applicable to LCH SA, and the objectives of owners and 
participants; (iv) establish that the Board and senior management of 
LCH SA have appropriate experience skills to discharge their duties and 
responsibilities; (v) specify clear and direct lines of responsibility; 
and (vi) consider the interests of participants' customers . . . and 
other relevant stakeholders of the covered clearing agency, within the 
meaning of SEC Rule 17Ad-22(e)(2).\29\
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    \29\ 17 CFR 240.17Ad-22(e)(2).
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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.\30\ 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 or have any impact on the competition among 
central counterparties. LCH SA operates an open access model, and the 
Proposed Rule Change will have no effect on this model.
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    \30\ 15 U.S.C. 78q-1(b)(3)(I).
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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.

[[Page 45723]]

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-2024-003 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-2024-003. 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 filings will also 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/rules-and-regulations/proposed-rule-changes-0. 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-2024-003 and should be submitted on or before June 13, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
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    \31\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-11270 Filed 5-22-24; 8:45 am]
BILLING CODE 8011-01-P