[Federal Register Volume 89, Number 133 (Thursday, July 11, 2024)]
[Notices]
[Pages 56910-56919]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-15194]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100462; File No. SR-LCH SA-2024-003]


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

July 5, 2024.

I. Introduction

    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''), pursuant to Section 19(b)(1) 
of the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change (the ``Proposed Rule Change'') to 
amend the Terms of Reference (``ToR'') of its Board of Directors 
(``Board'') and the ToR of the following Board subcommittees: 
Technology, Security and Resilience; Audit; Risk; and Nomination. The 
Proposed Rule Change was published for comment in the Federal Register 
on May 23, 2024.\3\ The Commission has not received any comments on the 
Proposed Rule Change. For the reasons discussed below, the Commission 
is approving the Proposed Rule Change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 100169 (May 17, 2024), 
89 FR 45717 (May 23, 2024) (File No. SR-LCH SA-2024-003) 
(``Notice'').
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II. Description of the Proposed Rule Change

    LCH SA is a clearing agency registered with the Commission. Through 
its CDSClear business unit, LCH SA provides central counterparty 
services for security-based swaps, including credit default swaps, and 
options on credit default swaps. LCH SA is an affiliate of LCH Ltd, 
through common ownership by LCH Group.\4\ LCH SA's ultimate parent 
company is London Stock Exchange Group (``LSEG'').\5\
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    \4\ LCH SA, Comprehensive Disclosure As required by SEC Rule 
17Ad-22(e)(23), Section 3.2, https://www.lch.com/system/files/
media_root/
LCH%20SA%20Comprehensive%20Disclosure%20Covered%20Clearing%20Agency%2
0standards%20-%20SEC%20-
%202020_Final%20version.pdf#:~:text=LCH%20SA%20provides%2C%20on%20its
%20website%2C%20a%20comprehensive,elements%20required%20by%20regulati
on%20EU%20N%C2%B0%20575%2F2013%20%28CRR%29.
    \5\ Id.
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    LCH SA's Board is responsible for LCH SA's overall management. It 
determines LCH SA's business strategies and oversees their 
implementation.\6\ LCH SA's Board has subcommittees that provide 
opinions, proposals, and recommendations to the full Board.\7\ The ToR 
of these Committees and of the Board detail their organization and 
functioning.\8\
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    \6\ LCH SA Terms of Reference of the Board, Article 12.
    \7\ LCH SA Terms of Reference of the Board, Article 15.
    \8\ LCH SA Terms of Reference of the Board, Article 1; LCH SA 
Terms of Reference of the Board, Article 16; LCH SA Terms of 
Reference of the Board, Article 17; LCH SA Terms of Reference of the 
Board, Article 18; LCH SA Terms of Reference of the Board, Article 
20.
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    LCH SA proposes updating these ToR. The proposed updates fall into 
six categories. The first category would rename the Technology, 
Security and Resilience Committee as the Operational Resilience 
Committee and expand the ambit of that committee. The second category 
would update the Audit Committee's responsibilities. The third would 
make additional changes to the Risk Committee's responsibilities, its 
supervision of risk at LCH SA, and other matters. The fourth would 
delete redundant language from the ToR. The fifth would make updates to 
reflect changes to the existence of and responsibilities for certain 
positions at LCH Group, which is LCH SA's intermediate parent company. 
The final category would include other miscellaneous changes.

A. Operational Resilience Committee

    The Proposed Rule Change would rename the Technology, Security and 
Resilience Committee; expand the Committee's responsibilities; make the 
Committee the representative of, and advisor to, the Board on matters 
related to operational resilience; specify the Committee's relationship 
with other Board committees; and revise the qualifications required for 
members of the Committee.

[[Page 56911]]

Renaming the Committee
    First, as noted above, the Proposed Rule Change would rename the 
Technology, Security and Resilience Committee to be the Operational 
Resilience Committee. To that end, the Proposed Rule Change would amend 
this Committee's ToR, Articles 15 and 20 of the Board ToR, and Article 
3.3.8 of the Audit Committee ToR to reflect this name change. 
Additionally, to reflect the Operational Resilience Committee's new 
name and to align with the Operational Resilience Committee ToR, LCH SA 
proposes changing the title of Article 11 of the Risk Committee ToR 
from ``Operational Risk Management'' to ``Operational Resilience 
Risk.'' \9\
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    \9\ Notice, 89 FR at 45720-21.
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Committee's Responsibilities
    LCH SA proposes the name change to better reflect the ambit of the 
Committee, which, under the Proposed Rule Change, would include 
technical subjects related to information systems, technology, and 
cybersecurity, as well as operational resilience.\10\ To reflect these 
responsibilities, LCH SA proposes replacing references to ``technology, 
security and operational resilience'' with references to ``operational 
resilience'' in Articles 1.4.3, 1.6, and 1.7 of the ToR.\11\ For the 
same reason, LCH SA proposes changes to Articles 4.2.1 and 4.2.6.\12\ 
In Article 4.2.1 of the Operational Resilience Committee ToR, LCH SA 
proposes specifying that the Operational Resilience Committee's review 
of LCH SA's operations and technology strategy and policies relates to 
operational resilience. In Article 4.2.6 of the Operational Resilience 
Committee ToR, the Proposed Rule Change would note, in part, that the 
Operational Resilience Committee must review and consider, where 
appropriate, LCH SA's resilience risk policies rather than its policies 
regarding operations and technology risk.
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    \10\ Id. at 45717.
    \11\ Id. at 45718 n.5.
    \12\ Id.
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    The Proposed Rule Change also would make the responsibilities of 
the Committee consistent with current practice and other LCH SA ToR. 
For example, current Article 1.2 states that the Committee must 
determine if management has put in place adequate strategies and plans 
which, among other things, provide reasonable assurance that LCH SA 
operates within its risk appetite. LCH SA's proposal would specify that 
the risk appetite is set by the Board, in accordance with current 
practice.\13\ Separately, the Proposed Rule Change would also add text 
consistent with current practice to Article 1.2 of the Operational 
Resilience Committee ToR, stating that the Operational Resilience 
Committee will receive a regular assessment of operational resilience 
risks.\14\ Article 1.5 of the Operational Resilience Committee ToR 
currently provides, in part, that the Operational Resilience Committee 
must keep itself informed of changes in guidance from within the 
broader Group. LCH SA proposes changes to this provision requiring the 
Operational Resilience Committee to keep itself informed of changes in 
guidance from within the broader LCH Group and LSEG to align it with 
current practice.\15\
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    \13\ Id. at 45718.
    \14\ Id.
    \15\ Id.
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Board Representative and Advisor
    Consistent with these responsibilities, the Proposed Rule Change 
also would make the Operational Resilience Committee the Board's 
representative and advisor on matters related to operational 
resilience.\16\ Currently, Section 1.1 of the Committee ToR provides 
that this Committee shall represent the interests of the Board in sound 
management of technology security and operational resilience, including 
cyber security, to ensure that technology security and operational 
resilience strategies, investments and outcomes support the mission 
values and strategic goals of LCH SA. The Proposed Rule Change would 
revise this to state that the Operational Resilience 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 mission, values, and strategic goals of LCH SA. 
LCH SA's proposal would also alter Section 1.2 of the Committee ToR to 
require the Operational Resilience Committee to determine whether 
management has put in place adequate strategies and plans which include 
appropriate management of operational resilience, rather than 
strategies and plans which include appropriate management of technical, 
security, operational resilience and cyber risks. The Proposed Rule 
Change would separately add a new Article 1.4.4 to indicate that the 
Operational Resilience Committee must help the Board review LCH SA's 
ongoing outsourcing and third-party risk management arrangements, since 
they also relate to operational resilience.\17\
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    \16\ Id. at 45717-18.
    \17\ Id. at 45718.
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Other Board Committees
    Just as the Committee would provide advice to the full Board on 
operational resilience matters, the Committee also would provide advice 
on operational resilience matters to other Board committees.\18\ 
Reflecting current practices to that end, the Proposed Rule Change 
would add new Articles 4.2.13, 4.2.14, and 4.2.15.\19\ Article 4.2.13 
would require the Committee to provide advice to LCH SA's Risk 
Committee on specific operational resilience risk related matters as 
appropriate. Article 4.2.14 would require the Committee to review 
Detailed Operational Risk Assessments (DORAs) with significant elements 
relating to technology, cyber or other operational resilience, prior to 
recommending approval by the Risk Committee.\20\ Article 4.2.15 would 
require that the Committee be notified of Operational Risk Assessments 
(ORA) related to cloud initiatives.
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    \18\ Id.
    \19\ Id.
    \20\ DORAs are risk assessments related to new product 
initiatives, strategic projects, or significant changes. The 
relevant LCH SA business line or function in charge of the 
initiative, project, or change, must produce a DORA whenever the 
initiative, project, or change presents operational risks that are 
novel or could have the potential to impact the current operational 
risk appetite assessment or platform resiliency. See Notice, 89 FR 
at 45718, n.7.
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    Related to the proposed addition of Article 4.2.14 of the 
Operational Resilience Committee ToR, LCH SA proposes changing Article 
11.3 of the Risk Committee ToR to note that the Risk Committee will 
review and approve the recommendations of the Operational Resilience 
Committee in relation to DORAs for significant projects and new 
products and notify the Board of the same. Currently, Article 11.3 
requires the Risk Committee to review DORAs for all significant 
projects and new products and to make recommendations to the Board for 
their approval. LCH SA also proposes adding a new Article 11.2 to the 
Risk Committee ToR to require the Risk Committee to inform the Board in 
a timely manner of any new risk affecting the resilience of LCH SA. 
These proposed changes are meant to align the Risk Committee ToR with 
the Operational Resilience Committee ToR.\21\
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    \21\ Id. at 45720-21.
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    To further reflect the Committee's role as advisor to the Risk 
Committee on resilience risk matters, LCH SA also proposes to add a new 
Article 1.3 to the

[[Page 56912]]

Operational Resilience Committee ToR.\22\ The proposed Article 1.3 
requires that the Operational Resilience Committee contribute to the 
review of the Technology Risk, Business Continuity Risk, Information 
Security and Cyber Risk, Operational Risk, Third Party (Outsourcing) 
Risk, and Physical Security Risk policies before they are presented to 
the Risk Committee for review and recommendation to the Board for 
approval. The Proposed Rule Change would also note in Article 1.3 that 
the Operational Resilience Committee will be notified by the owner of 
the policies of any breaches or waivers to those policies. To align the 
Risk Committee ToR with the Operational Resilience Committee ToR, LCH 
SA also proposes changes to Article 11.1 of the Risk Committee ToR.\23\ 
Currently, Article 11.1 requires the Risk Committee to review, on an 
annual basis, LCH SA's Resilience Risk Policy, to consider proposals 
for modification of those arrangements, and to make recommendations to 
the Board for approval. Under the Proposed Rule Change, Article 11.1 
would require the Risk Committee to review, on an annual basis, the 
Company's Operational Resilience Risk Policies, following review by the 
Operational Resilience Committee, and to make recommendations to the 
Board for approval.
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    \22\ Id. at 45718.
    \23\ Id. at 45720-21.
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    Relatedly, LCH SA proposes deleting from the ToR language related 
to other Committees to align with the Operational Resilience 
Committee's responsibilities. For example, current Article 11.2 of the 
Risk Committee ToR requires the Risk Committee to review and provide 
advice on any aspects of LCH SA's Operational Risk Management Framework 
on request by the Audit Committee or the Board. Because it requires the 
Risk Committee to take action within the ambit of the Operational 
Resilience Committee,\24\ LCH SA proposes removing this Article 11.2 of 
the Risk Committee ToR. Similarly, Article 1.3.6 of the Audit Committee 
ToR provides that the Audit Committee must assist the Board in 
fulfilling its responsibility relating to review of LCH SA's internal 
control environment, including review of resilience risk matters. The 
Proposed Rule Change would delete the reference to review of resilience 
risk matters because those would be the Operational Resilience 
Committee's responsibility.\25\ Separately, LCH SA proposes removing 
current Article 3.3.6(a)(iv) of the Audit Committee ToR in its entirety 
because it requires the Audit Committee to review provisions for 
business continuity and disaster recovery and the assessment of the 
effectiveness of the arrangements in place at least once a year. This 
is also the Operational Resilience Committee's responsibility.\26\
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    \24\ Id. at 45721 n.19.
    \25\ Id. at 45719.
    \26\ Id. See also Article 4.2.8 of the Operational Resilience 
Committee ToR.
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    Finally, LCH SA also proposes changes to Article 4.4 of the 
Operational Resilience Committee ToR to clarify the Committee Chair's 
membership on the Risk and Audit Committees.\27\ Current Article 4.4 
declares the Chair of the Operational Resilience Committee to be a 
member of the Audit Committee. Moreover, it allows the Risk Committee 
to invite the Chair of the Operational Resilience Committee to Risk 
Committee meetings on relevant matters and in a non-voting capacity. 
Under Article 4.4 as revised, the Chair of the Operational Resilience 
Committee would be a standing member of the Audit Committee and the 
Risk Committee. To further carry out this change, LCH SA also proposes 
adding a new Article 1.1.2 to the Risk Committee ToR, which would 
require that the Chair of the Operational Resilience Committee be a 
member of the Risk Committee.\28\
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    \27\ Id. at 45718
    \28\ Id. at 45718 n.9.
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Qualifications of Committee Members
    LCH SA proposes additional changes to ensure members of Operational 
Resilience Committee have experience consistent with the Committee's 
responsibilities.\29\ Currently, Article 2.1.2 provides that members of 
the Committee ideally have significant, recent and relevant experience 
of the operations of LCH and its dependence on technology. The Proposed 
Rule Change would revise Article 2.1.2 to require members of the 
Operational Resilience Committee to have the relevant expertise 
required for the Committee to function properly, as well as recent and 
relevant experience of the operations of LCH Group. LCH SA also 
proposes to renumber current Article 2.2 of the Operational Resilience 
Committee ToR to Article 2.1.3, and amend it to provide that other 
experts in IT, security, resilience matters, and more generally on 
operational resilience matters, rather than merely other technology 
expert individuals, may attend the meetings of the Committee on 
relevant matters in a non-voting capacity.
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    \29\ Id. at 45718.
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B. Audit Committee

    The Proposed Rule Change would make various updates to the Audit 
Committee's responsibilities. For example, current Article 1.3.5 
provides that the Audit Committee will review Enterprise Risk Reports. 
Because LCH SA is expanding the detail provided in these reports, the 
Proposed Rule Change would rename them as the Resilience and Enterprise 
Risk Management reports.\30\
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    \30\ Id. at 45719.
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    The Proposed Rule Change also would amend Article 3.3.4, which sets 
out the Audit Committee's responsibilities for reviewing LCH SA's 
compliance with regulations. The Proposed Rule Change would add to 
Article 3.3.4 a requirement that the Committee approve the compliance 
policies and be informed of any breaches. LCH SA is making this change 
to document an existing practice of the Audit Committee.\31\
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    \31\ Id.
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    Similarly, current Article 3.3.5 requires that the Audit Committee, 
among other things, review the process for annual model validations and 
breaches of LCH SA's Risk Governance Framework. The proposed rule 
change would add a requirement that the Committee be notified of 
outside appetite financial and resilience risks. LCH SA proposes this 
change to make the Audit Committee better informed as it carries out 
its responsibilities.\32\
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    \32\ Id. at 45719.
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    Finally, current Article 3.3.6(a)(iii) requires that the Committee 
receive annual reports required by a 2014 order of its national 
regulators related to internal controls.\33\ To ensure that the Audit 
Committee receives reports required by all applicable laws and 
regulations, rather than the reports required by those specific 
articles, LCH SA proposes deleting the reference to the specific order. 
Instead, Article 3.3.6(a)(iii) would require that the Audit Committee 
receive annual reports required by law or regulation from time to 
time.\34\
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    \33\ Id.
    \34\ Id.
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C. Risk Committee

    The proposed rule change also would change the Risk Committee ToR 
with respect to the Committee's responsibilities, the Committee's 
supervision of risk at LCH SA, reporting by the Committee, 
responsibilities of LCH SA's Chief Risk Officer, and membership of the 
Committee.

[[Page 56913]]

Responsibilities
    With respect to the responsibilities of the Committee, the Proposed 
Rule Change first would add a new Article 6.4. Article 6.4 would 
provide that the Risk Committee should 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. LCH SA is making this change to be consistent with its current 
practice.\35\
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    \35\ Id. at 45720.
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    Current Article 7.4 requires that the Committee review LCH SA's 
risk policy on the eligibility of new products. Since this policy is 
now called the Contract and Market Acceptability Policy, LCH SA 
proposes reflecting this name change in Article 7.4 of the Risk 
Committee ToR.\36\
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    \36\ Id. at 45720 n.15.
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    LCH SA also proposes a new Article 7.5 in the Risk Committee ToR. 
This new article would require that the Committee review annually a 
report outlining the compliance of all markets and products against the 
criteria defined in the Contract and Market Acceptability Policy. LCH 
SA is making this change to be consistent with its current 
practice.\37\
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    \37\ Id.
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    Further, for the same reason, LCH SA proposes revising renumbered 
Article 7.7.1. Current Article 7.7.1 clarifies that the CEO of LCH SA 
may be given authority to approve clearing of certain new contracts or 
products, without prior approval by the Risk Committee, subject to 
notifying the Committee. The Proposed Rule Change would add to this 
provision approval of trade venues, in addition to contracts or 
products.\38\
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    \38\ Id.
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    Articles 8 and 9 of the Risk Committee ToR contain additional 
proposed changes to the Committee's responsibilities, which LCH SA is 
making to reflect current practice.\39\ Current Article 8.2 requires 
that the Committee review initial margin policies and consider 
amendments to those policies. The Proposed Rule Change would amend 
Article 8.2 to reflect that the initial margin policies that the Risk 
Committee currently reviews are contained within the Financial Resource 
Adequacy Policy. LCH SA would also add a new Article 8.4. This new 
article would require the Risk Committee to be notified of the outcome 
of the annual independent validation of all margin models in accordance 
with the Model Governance, Validation and Review Policy.
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    \39\ Id.
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    Proposed revisions to Article 9 would clarify the Committee's 
responsibilities related to LCH SA's default procedures, again to be 
consistent with current practice.\40\ Current Article 9.1 requires that 
the Committee, in certain circumstances, review the adequacy of LCH 
SA's default funds on the basis of stress testing. The Proposed Rule 
Change would revise this slightly, to clarify that the Committee's 
review would be on the basis of stress testing and reverse stress 
testing reports.
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    \40\ Id.
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    LCH SA also proposes to add new Articles 9.4 and 9.7 to reflect 
current practice.\41\ Article 9.4 would provide that the Risk Committee 
should be notified of the outcome of the annual independent validation 
of all stress testing models used to size the default funds in 
accordance with the Financial Resource Adequacy Policy, while Article 
9.7 would note that the Risk Committee reviews default management fire 
drill exercise reports to assess the Company's default management 
process.
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    \41\ Id.
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    Moreover, LCH SA proposes several new provisions and revisions in 
Article 10 of the Risk Committee ToR to reflect current practices 
related to liquidity risk management.\42\ First, the Proposed Rule 
Change would add new Articles 10.3, 10.4, and 10.6. Article 10.3 would 
provide that the Risk Committee reviews annually (or more frequently if 
deemed necessary) the LCH SA 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. New Article 10.4 would require that the Committee be notified 
of the outcome of the annual independent validation of the liquidity 
risk model, in accordance with the Liquidity Risk Policy. New Article 
10.6 would require that the Committee be notified of the outcome of the 
annual independent validation of the collateral haircut model, in 
accordance with the Collateral Risk Policy. Further, the Proposed Rule 
Change would add a sentence to renumbered Article 10.5 noting that the 
Risk Committee should consider the addition of new collateral types and 
associated risk controls, and recommend them to the Board for approval.
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    \42\ Id.
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    The Proposed Rule Change would also add a new Article 12 to the 
Risk Committee ToR, titled Model Governance and Procyclicality. Under 
new Article 12.1, the Risk Committee would review annually (or more 
frequently if deemed necessary) the Company's Model Governance, 
Validation and Review Policy, to consider proposals for modification of 
those arrangements, and to make recommendations to the Board for 
approval. Under proposed Article 12.2, the Risk Committee would review, 
at least annually and upon material change, reports prepared by 
independent model experts confirming the ongoing suitability of LCH 
SA's financial risk models, in accordance with the Model Governance, 
Validation and Review Policy. Proposed Article 12.3 would require the 
Committee to review 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. The Committee also would review, at least annually, 
reports confirming that LCH SA's risk models do not operate in a 
procyclical manner under proposed Article 12.4. Consistent with LCH 
SA's overall current practice, these changes would help ensure that the 
LCH SA Risk Committee ToR mirror the corresponding ToR of its 
affiliated company, LCH Limited.\43\
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    \43\ Id. at 45721.
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    Proposed changes to renumbered Articles 13 and 20 of the Risk 
Committee ToR also would reflect LCH SA's current practices.\44\ LCH SA 
proposes a new Article 13.2 reflecting the current practice that the 
Risk Committee reviews, on an annual basis (or more frequently if 
deemed necessary), LCH SA's Recovery Plan and Wind Down Plan, considers 
proposals for modification of those arrangements, and makes 
recommendations to the Board for approval. Current Article 12.2 
requires that the Committee consider any issue relating to the 
outsourcing of functions which may impact the risk management of LCH 
SA. The Proposed Rule Change would renumber this article to 13.3 and 
would add language to clarify that it applies to any issue or new 
arrangement relating to the outsourcing of functions which may impact 
the risk management of the LCH SA, rather than only issues.
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    \44\ Id.
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    LCH SA's proposal would also correct renumbered Article 20.2 to 
reflect how the Risk Committee currently may assess the remuneration 
structure's impact on LCH SA's risk profile.\45\ The

[[Page 56914]]

current article, in part, requires that the Risk Committee have access 
to: (i) the risk management department (to assess how the remuneration 
structure affects the risk profile of LCH SA); (ii) the human resource 
department, (iii) the compliance department, and (iv) the internal 
audit department. The Proposed Rule Change would revise renumbered 
Article 20.2 to delete text giving the Risk Committee access to the 
risk management department. Instead, under revised Article 20.2, the 
Committee would have access to (i) the human resource department (to 
assess how the remuneration structure affects the risk profile of LCH 
SA), (ii) the compliance department, and (iii) the internal audit 
department. LCH SA is making this correction to reflect how the Risk 
Committee currently considers this remuneration risk.\46\
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    \45\ Id.
    \46\ Id.
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Supervision of Risk
    The Proposed Rule Change would make several changes to the Risk 
Committee ToR related to the Committee's supervision of risk, including 
through the information reported to the Committee. One such proposed 
change would add a new Article 3.2 clarifying that the risks within the 
current scope of the LCH SA Risk Committee are financial and model 
risks and operational resilience risks. LCH SA proposes this change to 
strengthen the Risk Committee's supervision of certain information 
technology and resilience risk matters.\47\ As noted above, while the 
Operational Resilience Committee would also have responsibilities 
related to operational resilience risks, that committee's role is one 
of review, and it would be required to provide advice to LCH SA's Risk 
Committee on specific operational resilience risk-related matters as 
appropriate.
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    \47\ Id. at 45720.
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    LCH SA also proposes a change in Article 4.2 of the Risk Committee 
ToR. Current Article 4.2 provides that the Risk Committee will receive 
a detailed report from the Executive Risk Committee which includes, 
among other things, the risk profile of LCH SA on a monthly basis. The 
Proposed Rule Change would clarify that this report would cover the 
risks defined within the scope in Article 3.2 of the Risk Committee 
ToR.\48\ Moreover, current Article 4.2 provides that this report will 
cover LCH SA and LCH Group. Due to a change in corporate structure, LCH 
SA's proposal would indicate in Article 4.2 that this report would 
include the risk profile of only LCH SA, rather than LCH SA and LCH 
Group.\49\
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    \48\ Id.
    \49\ Id. at 45720 n.13.
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Reporting by the Risk Committee
    In addition to revising the reporting to the Risk Committee, the 
Proposed Rule Change would revise the reporting by the Risk Committee. 
Specifically, LCH SA proposes that the Risk Committee Secretary no 
longer make available all minutes to the Chair of the Audit Committee 
of the LCH Group Board under Article 2.9 of the Risk Committee ToR. 
Instead, Article 2.9 would only require the Risk Committee Secretary to 
make those minutes available to the LCH SA Board and the Chair of the 
LCH SA Audit Committee. LCH SA proposes this change because the LCH 
Group Board does not usually consider discussions, decisions, and 
recommendations of the Risk Committee. Instead, discussions, decisions, 
and recommendations of the Risk Committee are reported to the LCH SA 
Board.\50\
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    \50\ Id. at 45720.
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Chief Risk Officer
    The Proposed Rule Change would also amend the Risk Committee ToR as 
it relates to certain responsibilities of LCH SA's Chief Risk Officer 
(``CRO''). First, the Proposed Rule Change would delete Article 2.10 of 
the Risk Committee ToR in its entirety. This provision requires that 
the CRO report to the LCH Group Board on the discussions, decisions, 
and recommendations of the Risk Committee to formally ratify those 
decisions and recommendations that affect the Group. LCH SA is deleting 
this provision because, as noted, the LCH Group Board does not usually 
consider discussions, decisions, and recommendations of the Risk 
Committee.\51\
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    \51\ Id.
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    Article 10.7.4 currently requires either the CRO or the Head of 
Collateral and Liquidity Management (``CaLM'') to sign off on breaches 
of the limits or restrictions detailed in the Collateral Risk Policy 
and/or the Investment Risk Policy. Since the CRO is responsible for 
these policies, including signing off on them as part of their second 
line function, LCH SA proposes requiring sign-off by only the CRO.\52\
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    \52\ Id.
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    The Proposed Rule Change would also clarify the responsibilities of 
the CRO in renumbered Article 16 (current Article 15) by editing 
renumbered Article 16 of the Risk Committee ToR to simplify the 
description of the information provided to the Committee by the CRO. 
Current Article 15.1 provides that the Committee will consider and 
review regular reports prepared by the Risk Management Department of 
LCH SA, which covers recent developments in at least the areas listed 
in current Articles 15.1.1 through 15.1.8, such as membership and 
operations. LCH proposes changing this Article's number to 16.2 and 
deleting the list of areas to be covered. Instead, a new Article 16.1 
would state that the Risk Committee receives management information 
from the CRO of LCH SA on the assessment of all financial, model and 
operational resilience risks, and informs the Board in a timely manner 
of any new significant risk change affecting the resilience of the 
Company. New Article 16.1 also would state that this report will 
include any breaches or waivers granted. Proposed Article 16.2 would 
indicate that the management information will cover recent developments 
and material issues related to Financial, Model, and Operational 
Resilience Risks. This revised Article would still require the CRO 
report to the Committee on all risks, but would not list the specific 
areas covered, as currently found in Article 15.1.
Membership
    LCH SA also would amend the Risk Committee ToR as it relates to 
members of the Committee. Current Article 1.1 provides that the Risk 
Committee must include representatives of clients as required by law or 
regulation from time to time. Article 1.1 further explains that no 
client representatives on the Committee may be employees of LCH Group. 
The Proposed Rule Change would revise this slightly, to provide that 
these client representatives may not be employees of any LCH Group 
company, meaning LCH Group Holdings Limited and its subsidiaries. This 
change is proposed to conform the Risk Committee ToR to LCH Group 
requirements.\53\
---------------------------------------------------------------------------

    \53\ Id. at 45719.
---------------------------------------------------------------------------

    Moreover, Article 1.1 also currently provides that the Risk 
Committee must include representatives of LCH SA's Clearing Members as 
required by law or regulation from time to time and who have 
significant experience in market, credit, or liquidity risk management. 
The Proposed Rule Change would add operational risk management to this 
list of subject matters in respect of which such Committee members 
should have significant expertise and experience. This would be 
consistent with the overall scope of responsibility of the Committee, 
as discussed above. This

[[Page 56915]]

change is proposed to conform the Risk Committee ToR with LCH Group 
requirements.\54\
---------------------------------------------------------------------------

    \54\ Id.
---------------------------------------------------------------------------

    LCH SA also proposes changes related to permitted conduct by 
External Committee Members of the Risk Committee. Current Article 1.5 
defines External Committee Members as those members of the Risk 
Committee that are not independent directors of LCH SA, who attend 
meetings as risk experts and represent Clearing Members and clients. 
Currently, under Article 1.6 of the Risk Committee ToR, External 
Committee Members may consult with other individuals within their 
organization, prior to Risk Committee meetings, where expertise other 
than the specialty of the external member is required. LCH SA's 
proposed changes specify that External Committee Members' consultations 
with other individuals within their organization, under Article 1.6, 
are subject to restrictions set out in the confidentiality agreements 
signed by the External Committee Members.
    Finally, the Proposed Rule Change would amend the list of 
individuals that can attend meetings of the Committee in a non-voting 
capacity. Currently, Article 1.2 lists individuals that may do so, 
including the Head of Financial Risk of LSEG, or their nominated 
delegate (under 1.2.6). LCH SA proposes revising current Article 1.2.6 
to replace the Head of Financial Risk of LSEG, or their nominated 
delegate, with the Chief Risk Officer of LSEG, or their nominated 
delegate. LCH SA believes this proposed change would ensure that the 
Risk Committee has appropriate oversight of all risks, including those 
risks that affect its ultimate parent company, LSEG.\55\
---------------------------------------------------------------------------

    \55\ Id. at 45719.
---------------------------------------------------------------------------

    Similarly, under current Article 1.2.8, such other individuals 
within the Group, as considered appropriate by the Committee, may 
attend in a non-voting capacity. The Proposed Rule Change would replace 
the reference to ``individuals within the Group'' with LCH SA 
employees. LCH SA proposes this change because it believes LCH SA 
employees would ostensibly have the expertise and background necessary 
to participate in Risk Committee meetings.\56\ Moreover, under the 
Proposed Rule Change, the Committee Chair rather than the entire 
Committee would determine whether it is appropriate for LCH SA 
employees to receive an invitation to a Risk Committee meeting, because 
such invitations would be limited to a particular agenda item and in a 
non-voting capacity.\57\
---------------------------------------------------------------------------

    \56\ Id.
    \57\ Id.
---------------------------------------------------------------------------

D. Deletion of Redundant Language

    LCH SA proposes several changes that would delete redundant 
language, and make related updates as needed, in the ToR of the Audit, 
Operational Resilience, and Risk committees.
    In the Audit Committee ToR, current Article 1.4 requires that the 
Committee keep itself informed of changes to laws and regulations 
applicable to the audit policy of LCH SA and matters for which the 
Audit Committee is responsible. The Proposed Rule Change would remove 
from Article 1.4 reference to the audit policy of LCH SA because the 
``matters for which the Audit Committee is responsible'' includes the 
audit policy.\58\ Similarly, LCH SA proposes replacing a reference to 
its audit policy in Article 1.5 with a reference to ``matters listed 
above.'' As revised, Article 1.5 would provide that nothing in the 
Audit Committee ToR will diminish the responsibility of the Board to 
maintain ongoing review of the matters listed above. A specific 
reference to audit policy in Article 1.5 is unnecessary because current 
Article 1.3, which describes the responsibilities of the Audit 
Committee, is broad enough to include audit policy.\59\ The Proposed 
Rule Change would also delete current Article 2.3.2 in its entirety. 
This article indicates that the LCH SA Audit Committee Chair may also 
be appointed as the Chair of the LCH Limited Audit Committee. Article 
2.2.2 of the ToR of the Audit Committee for LCH Limited already notes 
that the same person can chair both committees.\60\ Finally, LCH SA 
would remove current Article 3.3.4(e), which requires the Audit 
Committee to review the performance of LCH SA's Chief Compliance 
Officer. LCH SA is removing this provision because it covers 
responsibilities held by the Remuneration Committee.\61\
---------------------------------------------------------------------------

    \58\ Id. at 45719.
    \59\ Id.
    \60\ Id.
    \61\ Id.
---------------------------------------------------------------------------

    LCH SA also proposes a change in part to eliminate redundant 
language in the Operational Resilience Committee ToR. Current Article 
4.2.10 of the Operational Resilience Committee ToR provides that the 
Operational Resilience Committee reviews and receives reports as 
appropriate, on operations and agreed metrics in conjunction with the 
Audit Committee. Since current Article 4.2.9 of the Operational 
Resilience Committee ToR already provides that the Operational 
Resilience Committee receives reports, as appropriate, from the Audit 
Committee regarding the results of reviews and assessments of LCH SA's 
operations and technology functions, LCH SA views Article 4.2.10 as 
redundant.\62\ Therefore, LCH SA proposes to delete it. With the 
deletion of current Article 4.2.10, current Article 4.2.11 would become 
new Article 4.2.10 with some proposed revisions. Specifically, new 
Article 4.2.10 (former Article 4.2.11) would require the Operational 
Resilience Committee to review and receive reports in relation to 
ongoing technology outsourcing rather than on technology outsourcing.
---------------------------------------------------------------------------

    \62\ Id. at 45718. LCH SA also proposes this change because it 
would help prevent the Operational Resilience Committee's 
responsibilities from overlapping with the Audit Committee's 
Responsibilities. Id.
---------------------------------------------------------------------------

    Moreover, LCH SA's proposal would remove Article 7.3 of the 
Operational Resilience Committee ToR in its entirety. This provision 
notes that any disagreement within the Board, including disagreement 
between the Committee's members and the rest of the Board, should be 
resolved at the Board level. Further, it notes that where disagreements 
between the Committee and the Board cannot be resolved, the Committee 
has the right to report the issue to the shareholders through the 
Company's annual report. LCH SA proposes to remove this provision 
because it is applicable only to the Audit Committee ToR.\63\
---------------------------------------------------------------------------

    \63\ Id.
---------------------------------------------------------------------------

    Finally, the Proposed Rule Change would make a similar change to 
the Risk Committee ToR to remove a redundant provision. Specifically, 
the Proposed Rule Change would delete Article 1.2.5 of the Risk 
Committee ToR in its entirety. This provision allows the Chief 
Executive Officer of LCH Group to be invited ex officio to attend Risk 
Committee meetings in a non-voting capacity. LCH SA proposes deleting 
Article 1.2.5 because the Chief Executive Officer of LCH SA is already 
listed as the appropriate ex officio non-voting party under Article 
1.2.2 of the Risk Committee ToR.

E. Positions at LCH Group

    The Proposed Rule Change also would make updates regarding changes 
to certain positions at LCH Group. As noted above, LCH Group is LCH 
SA's intermediate parent company.
    The Proposed Rule Change would update the Nomination Committee, 
Board, and Risk Committee ToR to reflect the retirement of the LCH 
Group Chief Risk Officer position. Current Article 2.3 of the 
Nomination

[[Page 56916]]

Committee ToR provides that the LCH SA Board will comprise the Chief 
Executive Officers of LCH Group; LCH SA, as proposed by the Group CEO; 
and the Chief Risk Officer of LCH Group, as proposed by the Group CEO 
or such other LCH executive as may be proposed by the Group CEO. 
Current Article 2.3 defines these individuals as Executive Directors. 
Since the LCH Group Chief Risk Officer position has been retired, the 
Proposed Rule Change would remove this position from Article 2.3 of the 
Nomination Committee ToR.\64\ Instead, the Chief Risk Officer of London 
Stock Exchange Group, rather than LCH Group, as proposed by the CEO of 
LCH Group, will be a member of the Board. The Proposed Rule Change also 
would add to Article 2.3 that an LSEG executive, as may be proposed by 
the LCH Group CEO, will also be a member of the Board. Finally, under 
revised Article 2.3, the term Executive Director would be defined as 
either the Chief Executive Officer of LCH SA or LCH Group.
---------------------------------------------------------------------------

    \64\ Id. at 45719 n.12.
---------------------------------------------------------------------------

    Similarly, LCH SA proposes changes to Article 3 of the ToR of the 
Board to account for the retirement of the LCH Group Chief Risk Officer 
position. Currently, Article 3 provides that the Board includes, as a 
category of directors, Executive Directors which includes the LCH SA 
CEO, the LCH Group CEO, and an additional LCH executive, who may be but 
shall not be limited to the Chief Risk Officer of LCH Group. LCH SA 
proposes deleting reference to the LCH Group Chief Risk Officer from 
this provision and including only the LCH SA CEO and LCH Group CEO as 
Executive Directors. Additionally, LCH SA proposes including as a 
separate 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. Like the changes to Article 2.3 of 
the Nomination Committee ToR, these revisions would replace the Chief 
Risk Officer of LCH Group with the Chief Risk Officer of LSEG.
    Finally, LCH SA also proposes updating the Risk Committee ToR to 
reflect the retirement of the Group CRO. Specifically, the Proposed 
Rule Change would delete Article 1.2.4 from the Risk Committee ToR 
because it indicates that the Chief Risk Officer of LCH Group may be 
invited to attend Risk Committee meetings in a non-voting capacity.\65\
---------------------------------------------------------------------------

    \65\ Id. at 45719.
---------------------------------------------------------------------------

    Separately, current Article 10.7.4 of the Risk Committee ToR 
provides that if any of the limits or restrictions detailed in LCH SA's 
Collateral Risk Policy and/or Investment Risk Policy are breached, that 
breach must be, among other things, reported to the Risk Committee, the 
Audit Committee, the Executive Risk Committee, and the CEOs of LCH SA 
and LCH Group. The Proposed Rule Change would delete the reference to 
the CEO of LCH Group. LCH SA is making this change because LCH Group's 
CEO does not usually consider breaches of those policies. Therefore, it 
is no longer necessary to report such breaches to LCH Group's CEO.\66\
---------------------------------------------------------------------------

    \66\ Id.
---------------------------------------------------------------------------

F. Miscellaneous Changes

    The Proposed Rule Change also would make updates to defined terms 
across the various ToR and make other non-substantive changes, as 
described below.
    With respect to the defined terms, the Proposed Rule Change would 
replace the term Chairman with Chair in the ToR of the Operational 
Resilience Committee, Audit Committee, and Risk Committee.\67\ LCH SA 
also proposes changes that would specify that Group means LCH Group in 
Article 5.1 of the Operational Resilience Committee ToR and Article 2.5 
of the Risk Committee ToR.\68\ The Proposed Rule change also would 
replace the term Group with LCH in Articles 14.1 and 16.4 of the Risk 
Committee ToR in order to be consistent with LCH Group terminology.\69\
---------------------------------------------------------------------------

    \67\ Id. at 45717.
    \68\ Id.
    \69\ Id.
---------------------------------------------------------------------------

    In the ToR of the Board, LCH SA proposes removing the requirement 
that meeting minutes be translated to French before being presented to 
the Board because this is now unnecessary based on the composition of 
the Board.\70\ The Proposed Rule Change would also edit Article 12(e) 
of the ToR of the Board to align it with LCH SA's internal procedures, 
which require that the Board approve LCH SA's Wind Down Plan.\71\ Under 
current Article 12(e), the Board approves LCH SA's Business Continuity 
Policy and Disaster Recovery Plan. LCH SA proposes that Article 12(e) 
require the Board to approve LCH SA's Business Continuity Policy, 
Disaster Recovery Plan, and Wind Down Plan.
---------------------------------------------------------------------------

    \70\ Id. at 45721.
    \71\ Id.
---------------------------------------------------------------------------

    Finally, the Proposed Rule Change would renumber various provisions 
because of the changes described above as well as make a number of non-
substantive clarifying changes.

III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act requires the Commission to approve a 
proposed rule change of a self-regulatory organization if it finds that 
the Proposed Rule Change is consistent with the requirements of the Act 
and the rules and regulations thereunder applicable to the 
organization.\72\ Under the Commission's Rules of Practice, the 
``burden to demonstrate that a proposed rule change is consistent with 
the Exchange Act and the rules and regulations issued thereunder . . . 
is on the self-regulatory organization [`SRO'] that proposed the rule 
change.'' \73\
---------------------------------------------------------------------------

    \72\ 15 U.S.C. 78s(b)(2)(C).
    \73\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR 
201.700(b)(3).
---------------------------------------------------------------------------

    The description of a proposed rule change, its purpose and 
operation, its effect, and a legal analysis of its consistency with 
applicable requirements must all be sufficiently detailed and specific 
to support an affirmative Commission finding,\74\ and any failure of an 
SRO to provide this information may result in the Commission not having 
a sufficient basis to make an affirmative finding that a proposed rule 
change is consistent with the Exchange Act and the applicable rules and 
regulations.\75\ Moreover, ``unquestioning reliance'' on an SRO's 
representations in a proposed rule change is not sufficient to justify 
Commission approval of a proposed rule change.\76\
---------------------------------------------------------------------------

    \74\ Id.
    \75\ Id.
    \76\ Susquehanna Int'l Group, LLP v. Securities and Exchange 
Commission, 866 F.3d 442, 447 (D.C. Cir. 2017) (``Susquehanna'').
---------------------------------------------------------------------------

    After carefully considering the Proposed Rule Change, the 
Commission finds that the Proposed Rule Change is consistent with the 
requirements of the Exchange Act and the rules and regulations 
thereunder applicable to LCH SA. More specifically, for the reasons 
given below, the Commission finds that the Proposed Rule Change is 
consistent with Sections 17A(b)(3)(C) \77\ and 17A(b)(3)(F) of the Act 
\78\ and Rule 17Ad-22(e)(2)(v).\79\
---------------------------------------------------------------------------

    \77\ 15 U.S.C. 78q-1(b)(3)(C).
    \78\ 15 U.S.C. 78q-1(b)(3)(F).
    \79\ 17 CFR 240.17Ad-22(e)(2)(v).
---------------------------------------------------------------------------

A. Consistency With Section 17A(b)(3)(C) of the Act

    Under Section 17A(b)(3)(C) of the Act, LCH SA's rules must ``assure 
fair representation of its shareholders (or members) and participants 
in the selections of its directors and administration of its affairs.'' 
The Commission has stated that ``at a

[[Page 56917]]

minimum, fair representation requires that the entity responsible for 
nominating individuals for membership on the Board should be obligated 
by law or rule to make nominations with a view toward assuring fair 
representation of the interests of shareholders and a cross section of 
the community of participants.'' \80\ Based on its review of the record 
and for the reasons discussed below, the Commission believes that LCH 
SA's changes are consistent with Section 17A(b)(3)(C).\81\
---------------------------------------------------------------------------

    \80\ Securities Exchange Act Release No. 20221 (Sept. 23, 1983), 
48 FR 45167, 45172 (Oct. 3, 1983).
    \81\ 15 U.S.C. 78q-1(b)(3)(C).
---------------------------------------------------------------------------

    First, the proposed changes would not alter the number of directors 
that represent LCH SA's participants, which are User Directors.\82\ The 
Commission approved the current version of the LCH SA Board ToR.\83\ 
Under the ToR, User Directors are currently a category of Director on 
LCH SA's Board. A User Director means a director who is nominated by a 
shareholder of LCH Group which is a User or who is otherwise connected 
to such User shareholder by virtue of his employment or directorship. 
The Proposed Rule Change would not alter the inclusion of User 
Directors on the Board.
---------------------------------------------------------------------------

    \82\ Notice, 89 FR at 45722.
    \83\ Securities Exchange Act Release No. 89793 (Sept. 9, 2020), 
85 FR 57266 (Sept. 15, 2020) (File No. SR-LCH SA-2020-003).
---------------------------------------------------------------------------

    Second, the Proposed Rule Change would work to enhance LCH SA's 
owners' representation in the administration of LCH SA's affairs. LCH 
SA has one shareholder, LCH Group,\84\ and LCH SA's ultimate parent 
company is LSEG. As the Commission previously found, LCH SA's ToR 
ensure LSEG's and LCH Group's ability to participate in LCH SA's 
affairs through provisions that would, for example, provide LSEG with a 
seat on the LCH SA Board or require LCH SA to seek LCH Group approval 
to take action.\85\ The Proposed Rule Change would enhance LSEG's 
representation in the administration of LCH SA's affairs by, for 
example, replacing LCH Group's Chief Risk Officer with LSEG's Chief 
Risk Officer as a potential member of the Board in the ToR of the Board 
and the Nomination Committee. Representation of LSEG is important 
because LSEG is LCH SA's ultimate shareholder. At the same time, 
despite shifts in LCH Group's representation in some respects--for 
example, the LCH Group CEO would no longer be invited to Risk Committee 
Meetings--its representation in the administration of LCH SA's affairs 
would remain significant. For example, under LCH SA's proposal, the CEO 
of LCH Group would still be an Executive Director of LCH SA.
---------------------------------------------------------------------------

    \84\ LCH Group Holdings Limited Report and Consolidated 
Financial Statements for the year ended 31 December 2023, https://www.lch.com/system/files/media_root/lch-group-holdings-limited-financial-statements.pdf.
    \85\ Securities Exchange Act Release No. 89793, 85 FR at 57271.
---------------------------------------------------------------------------

    For the foregoing reasons the Proposed Rule Change is consistent 
with the requirements of Section 17A(b)(3)(C) of the Act.\86\
---------------------------------------------------------------------------

    \86\ 15 U.S.C. 78q-1(b)(3)(C).
---------------------------------------------------------------------------

B. Consistency With Section 17A(b)(3)(F) of the Act

    Under Section 17A(b)(3)(F) of the Act, LCH SA's rules, among other 
things, must be ``designed to promote the prompt and accurate clearance 
and settlement of securities transactions . . . derivative agreements, 
contracts, and transactions . . . and 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.'' \87\ Based on its 
review of the record, and for the reasons discussed below, the 
Commission believes that LCH SA's changes are consistent with Section 
17A(b)(3)(F) of the Act.\88\
---------------------------------------------------------------------------

    \87\ 15 U.S.C. 78q-1(b)(3)(F).
    \88\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    The Proposed Rule Change makes the ambit of the Technology, 
Security and Resilience Committee and the Risk Committee clearer. For 
example, under the proposal, the Technology, Security and Resilience 
Committee's purpose would be changed to 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 mission, values, and 
strategic goals of LCH SA. To reflect this change in scope, LCH SA 
proposes renaming the Committee the Operational Resilience Committee. 
LCH SA also proposes a new Article 3.2 of the Risk Committee ToR 
clarifying that the risks within the scope of the LCH SA Risk Committee 
are financial and model risks and operational resilience risks.
    Further, the Proposed Rule Change would more clearly identify 
responsibilities and maintain consistency between those 
responsibilities and the scope of certain Committees. For example, LCH 
SA proposes adding Articles 4.2.13 through 4.2.15 to the ToR of the 
Operational Resilience Committee to require the Operational Resilience 
Committee to review certain matters and provide advice to the Risk 
Committee. Relatedly, proposed changes to Article 11.3 of the ToR of 
the Risk Committee would require the Risk Committee to review and 
approve recommendations of the Operational Resilience Committee for 
certain matters. LCH SA's proposal would also add a new Article 1.3 to 
the Operational Resilience Committee ToR requiring that the Operational 
Resilience Committee help with the review of a number of different 
policies. Further, LCH SA proposes deleting language from certain ToR 
to ensure its Committees do not encroach on one another's 
responsibilities. To that end, along with other provisions, LCH SA 
proposes removing Article 11.2 of the Risk Committee ToR, which 
requires the Risk Committee to review and provide advice on any aspects 
of LCH SA's operational risk management framework on request by the 
Audit Committee or the Board. LCH SA also proposes adding a new Article 
3.3.4(a) to the Audit Committee ToR requiring the Audit Committee to 
approve the Compliance policies and be informed of any breaches. To 
make sure that the Risk Committee has appropriate oversight of all 
risks, LCH SA proposes replacing the Head of Financial Risk of LSEG, or 
their nominated delegate, with the Chief Risk Officer of LSEG, or their 
nominated delegate, in current Article 1.2.6 as an ex officio party to 
be invited to Risk Committee meetings in a non-voting capacity from 
time to time.\89\
---------------------------------------------------------------------------

    \89\ Notice, 89 FR at 45719.
---------------------------------------------------------------------------

    The proposed changes would also help clarify and simplify LCH SA's 
ToR by deleting redundant text. For example, the proposal would remove 
redundant references to the Audit Policy from Articles 1.4 and 1.5 of 
the Audit Committee ToR. Likewise, the proposed deletion of Article 
2.3.2 from the Audit Committee ToR would eliminate a duplicative 
provision that indicates that the LCH SA Audit Committee Chair may also 
be appointed as the Chair of the LCH Limited Audit Committee. A 
provision in the ToR of the Audit Committee for LCH Limited already 
notes the same person can be Chair of both committees.
    LCH SA also proposes changes making the ToR clearer by improving 
their accuracy, renaming items, and identifying where to find 
information. For example, the Proposed Rule Change would make a number 
of changes related to the retirement of the LCH Group Chief Risk 
Officer position. Additionally, LCH SA proposes changing the name of 
reports identified in Article 1.3.5 of the Audit Committee ToR in line 
with additional details

[[Page 56918]]

contained in the reports. LCH SA also proposes noting that initial 
margin policies that the Risk Committee must review are located in the 
Financial Resource Adequacy Policy.
    By making the ambit of the Committees clearer, more clearly 
identifying Committee responsibilities, and maintaining consistency 
between Committee responsibilities and Committee scopes, LCH SA reduces 
the potential for confusion by Committees or individuals as to whether 
they have a specific responsibility. By deleting redundant text, LCH SA 
lowers the chance that it could have contradictory text within its 
rules, which would also create confusion. By correcting inaccurate 
text, LCH SA makes it less likely that there is confusion as to what 
the ToR require. By renaming items to better match their contents and 
identifying where to find information LCH SA improves the chances that 
individuals can find accurate information when referring to their ToR 
and thereby reduces the likelihood there will be confusion. Reducing 
the potential for confusion could help ensure that Committees complete 
their responsibilities in timely manner. To the extent Committees, such 
as the Operational Resilience Committee or the Risk Committee, do not 
complete their responsibilities, they may fail to identify certain 
changes in risk and therefore fail to initiate processes that could 
minimize those risks. Ultimately, failure to minimize risks could 
result in LCH SA not having sufficient funds in place to recover from a 
Clearing Member default, which could in turn result in a disruption of 
clearing services. Thus, by making the ambit of the Committees and 
their responsibilities clearer, maintaining consistency between 
Committee responsibilities and Committee scopes, eliminating redundant 
text, improving the ToR accuracy, renaming items, and identifying where 
to find information, LCH SA promotes the prompt and accurate clearance 
and settlement of securities transactions and assures the safeguarding 
of securities and funds which are in the custody or control of it or 
for which it is responsible.
    Multiple proposed changes would also ensure that qualified 
individuals participate in LCH SA decision making. For example, LCH SA 
proposes that Article 2.1.2 of the ToR of the Operational Resilience 
Committee be revised to require that members of the Operational 
Resilience Committee have the relevant expertise required for the 
Committee to function properly as well as recent and relevant 
experience of the operations of LCH Group. LCH SA also proposes changes 
to its definition of User Risk Committee members in Article 1.1.3 of 
the Risk Committee ToR which would add operational risk management to 
the list of subject matters in respect of which such Committee members 
should have significant expertise and experience. Additionally, LCH 
SA's proposal would allow CEO of LCH SA to approve trade venues which 
present no novel risk features and require no amendment of risk 
controls subject to the Risk Committee being notified of such 
approvals. The Proposed Rule Change would also strengthen or maintain 
the ability of Committees to carry out their responsibilities by 
ensuring that the appropriate Committees and individuals receive notice 
of certain reviews. For example, new Article 6.4 to the Risk Committee 
ToR would require the Risk Committee to 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. Likewise, new Article 8.4 of the Risk Committee ToR would 
specify that the Risk Committee must be notified of the outcome of the 
annual independent validation of all margin models in accordance with 
the Model Governance, Validation and Review Policy.
    Additionally, the Proposed Rule Change would strengthen the ability 
of Committees to carry out their responsibilities because the proposed 
change would protect confidential information and thereby would afford 
the Risk Committee the ability to obtain information. In proposed 
Article 1.6 of the Risk Committee ToR, LCH SA would specify that 
external Risk Committee members' consultations with other individuals 
within their organization under Article 1.6 are subject to restrictions 
set out in confidentiality agreements signed by the external member. By 
protecting confidential information in this instance, the proposed rule 
change would enhance and improve the information and recommendations 
provided to the Risk Committee by its external members.
    Ensuring that the individuals making decisions related to the 
administration of a clearing agency are qualified to make those 
decisions, receive relevant information from important notices, and 
receive quality information and informed recommendations from external 
stakeholders helps decrease the chance of those decisions being 
misinformed or wrong, which in turn helps decrease the chance that a 
misinformed or wrong decision increases the possibility of a Clearing 
Member default or interruption to the clearing agency's functions. As 
such, by ensuring that qualified individuals participate in LCH SA 
decision making, that notices are received, and that external members 
are able to consult with other individuals in their organizations under 
certain circumstances, LCH SA promotes the prompt and accurate 
clearance and settlement of securities transactions and assures the 
safeguarding of securities and funds which are in the custody or 
control of it or for which it is responsible.
    The Proposed Rule Change would also delete text from Article 10 of 
the ToR of the Board requiring meeting minutes to be translated to 
French. This requirement is now unnecessary due to the Board's 
composition. Board members would still approve the minutes, as required 
by the Board ToR, which will help ensure that they continue to carry 
out their responsibilities to ensure that the minutes accurately 
reflect meetings of the Board, which in turn will help LCH SA continue 
to ensure that LCH SA and its Board continue to comply with applicable 
rules and regulations and have accurate information to address 
potential defaults, trading disruptions, and other issues that could 
affect LCH SA's ability to support the prompt and accurate clearance 
and settlement of securities transactions and the safeguarding of 
securities and funds which are in the custody or control of LCH SA or 
for which it is responsible.
    For the foregoing reasons, the Commission finds that the Proposed 
Rule Change is consistent with the requirements of Section 17A(b)(3)(F) 
of the Act.\90\
---------------------------------------------------------------------------

    \90\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

C. Consistency With Rule 17Ad-22(e)(2)(v) Under the Act

    Rule 17Ad-22(e)(2)(v) requires covered clearing agencies to 
establish, implement, maintain, and enforce written policies and 
procedures reasonably designed to specify clear and direct lines of 
responsibility.\91\ Based on its review of the record, and for the 
reasons discussed below, the Commission believes that LCH SA's changes 
are consistent with Section 17Ad-22(e)(2)(v) of the Act.\92\
---------------------------------------------------------------------------

    \91\ 17 CFR 240.17Ad-22(e)(2)(v).
    \92\ 17 CFR 240.17Ad-22(e)(2)(v).
---------------------------------------------------------------------------

    Several of LCH SA's proposed changes specify clear and direct lines 
of responsibility. Proposed Article 1.3 of the Operational Resilience 
Committee ToR would require that the Operational Resilience Committee 
contribute to the review of certain Operational Resilience

[[Page 56919]]

policies, including the Technology Risk Policy and the Information 
Security and Cyber Risk Policy. Proposed Article 9.7 of the Risk 
Committee ToR would require the Risk Committee to review default 
management fire drill exercise reports to assess LCH SA's default 
management process. Proposed Article 3.3.4(a) of the Audit Committee 
ToR would require the Audit Committee to approve the compliance 
policies and be informed of any breaches. Proposed Article 12(e) of the 
ToR of the Board would require the Board to approve LCH SA's Wind Down 
plans. Numerous additional examples can be found throughout LCH SA's 
proposal.
    The Commission finds, therefore, that the Proposed Rule Change is 
consistent with the requirements of Rule 17Ad-22(e)(2)(v) under the 
Act.\93\
---------------------------------------------------------------------------

    \93\ 17 CFR 240.17Ad-22(e)(2)(v).
---------------------------------------------------------------------------

IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
Proposed Rule Change is consistent with the requirements of the Act, 
and in particular, Sections 17A(b)(3)(C) \94\ and 17A(b)(3)(F) of the 
Act \95\ and Rule 17Ad-22(e)(2)(v).\96\
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    \94\ 15 U.S.C. 78q-1(b)(3)(C).
    \95\ 15 U.S.C. 78q-1(b)(3)(F).
    \96\ 17 CFR 240.17Ad-22(e)(2)(v).
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    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
that the Proposed Rule Change (SR-LCH SA-2024-003) be, and hereby is, 
approved.\97\
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    \97\ In approving the Proposed Rule Change, the Commission 
considered the proposal's impacts on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\98\
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    \98\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-15194 Filed 7-10-24; 8:45 am]
BILLING CODE 8011-01-P