[Federal Register Volume 90, Number 240 (Wednesday, December 17, 2025)]
[Notices]
[Pages 58657-58659]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-23067]
[[Page 58657]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-104375; File No. SR-LCH SA-2025-008]
Self-Regulatory Organizations; LCH SA; Order Approving Proposed
Rule Change Relating to Revisions to Terms of Reference of the
Nomination Committee and Board of Directors
December 12, 2025.
I. Introduction
On September 2, 2025, 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 to amend the Terms
of Reference of the Board of Directors of LCH SA (``Board ToR'') and
the Terms of Reference of the Nomination Committee of the Board of
Directors (``Nomination Committee ToR'') (together, the ``Proposed Rule
Change''). The Proposed Rule Change was published for comment in the
Federal Register on September 19, 2025.\3\ On November 3, 2025, the
Commission designated a longer period within which to approve,
disapprove, or institute proceedings to determine whether to approve or
disapprove the Proposed Rule Change.\4\ The Commission did not receive
comments regarding 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. 103975 (Sept. 16, 2025),
90 FR 45288 (Sep. 19, 2025) (File No. SR-LCH SA-2025-008)
(``Notice'').
\4\ Securities Exchange Act Release No. 104173 (Nov. 3, 2025),
90 FR 51424 (Nov. 17, 2025) (File No. SR-LCH SA-2025-008).
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II. Description of the Proposed Rule Change
LCH SA is a clearing agency registered with the Commission for the
purpose of clearing security-based swaps. LCH SA is managed by a board
of directors (the ``Board''). The Proposed Rule Change would modify the
composition of the Board, as reflected in the Board ToR and Nomination
Committee ToR. Specifically, the Proposed Rule Change would amend the
provisions of both documents as they relate to directors that are
nominated by (i) Euronext; (ii) Users of LCH SA; and (iii) the London
Stock Exchange Group (``LSEG'').\5\ The Proposed Rule Change also would
make unrelated, minor updates to the Board ToR as it relates to the
description of certain LCH SA personnel.
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\5\ LCH SA is a subsidiary of LCH Group Holdings Limited (``LCH
Group'') and an indirect subsidiary of LSEG. Notice, 90 FR at 45288,
n.3.
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A. Euronext Director
LCH SA had a business relationship with Euronext pursuant to which
LCH SA provided clearing services for certain trading facilities and
markets operated by Euronext. LCH SA had agreements in place to
document this relationship, and Euronext had an ownership stake in LCH
SA. Recently, Euronext sold its ownership stake in LCH SA, and Euronext
and LCH SA ended their clearing relationship.\6\ Thus, LCH SA no longer
offers clearing services to Euronext, and Euronext no longer has an
ownership stake in LCH SA.
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\6\ See Euronext announces the sale of its 11.1% stake in LCH SA
to LCH Group Holdings Limited, available at https://www.euronext.com/en/about/media/euronext-press-releases/euronext-announces-sale-its-111-stake-lch-sa-lch-group-holdings and
Successful expansion of Euronext Clearing to all Euronext financial
derivatives markets, available at https://www.euronext.com/en/about/media/euronext-press-releases/successful-expansion-euronext-clearing-all-euronext-financial.
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Currently, Article 3 of the Board ToR gives Euronext the right to
nominate one director while certain agreements between LCH SA and
Euronext are in effect. Due to the end of the business relationship
between LCH SA and Euronext, these agreements are no longer in place.
Accordingly, the Proposed Rule Change would delete this provision from
Article 3 and otherwise remove references to a director nominated by
Euronext from the Board ToR, thus eliminating the Euronext director.\7\
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\7\ For example, the Proposed Rule Change would delete from
Article 16 a provision that makes the Euronext director a part of
the Audit Committee of the Board.
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The Proposed Rule Change would make similar updates to the
Nomination Committee ToR. The Proposed Rule Change would delete Article
2.1.5, which requires the Nomination Committee recommend to the Board
for appointment a director nominated by Euronext. The Proposed Rule
Change also would delete in its entirety Article 4, which describes how
Euronext may nominate a person to be a director and the criteria that a
nominee must satisfy.
B. User Directors
The Board ToR currently defines a User Director as 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 employment or
directorship. A User is defined as an Eligible Institution other than
an Exchange, and Eligible Institution means, among things, inter-dealer
brokers, clearing members, and indirect users.\8\ Thus, as currently
written, a User must be a shareholder of LCH Group to nominate
directors to the Board.
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\8\ The term ``Eligible Institution'' is defined in the Articles
of Association of LCH Group. See Notice, 90 FR at 45289, n.10.
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The Proposed Rule Change would amend the Board ToR to allow all
Users, not just those who are shareholders of LCH Group, to nominate
directors to the Board. Thus, the Proposed Rule Change would amend the
definition of User Director in the Board ToR to mean a director who is
nominated by a User or who is otherwise connected to such User by
virtue of their employment or directorship, regardless of whether the
User is a shareholder of LCH Group.
In the Nomination Committee ToR, the Proposed Rule Change would
make a similar amendment and increase the number of User Directors.
Article 2.1.3 currently requires the Nomination Committee recommend to
the Board for appointment up to two directors associated with or
connected to ``User Shareholders,'' meaning Users that are shareholders
of LCH Group. The Proposed Rule Change would amend Article 2.1.3 to
increase the number to three from two, include any director associated
with a User, and delete the term User Shareholder. Thus, under Article
2.1.3 as amended, the Nomination Committee would recommend to the Board
for appointment up to three directors associated with a User.
The Proposed Rule Change would make other changes to the Nomination
Committee ToR to reflect that a User no longer needs to be a
shareholder of LCH Group to nominate a director. The Appendix to the
Nomination Committee ToR outlines the process for appointing and
removing User Directors to the Board. In the Appendix, the Proposed
Rule Change would delete references to User Shareholders and any other
references to a User being a shareholder of LCH Group.\9\
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\9\ For example, under current Section 3(a)(iii) of the
Appendix, the Nomination Committee must consider the size of a
User's holding in LCH Group when determining whether to recommend
the person nominated by that User. The Proposed Rule Change would
delete this provision.
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The Proposed Rule Change also would update the Appendix as it
relates to the criteria applicable to a User Director. Specifically,
Section 2(b) of the
[[Page 58658]]
Appendix currently requires the Nomination Committee to recommend a
replacement for any User Director who is removed due to the User who
nominated them ceasing to be an Eligible User.\10\ The Proposed Rule
Change would simplify this requirement. Under the Proposed Rule Change,
the Nomination Committee would recommend a replacement for any User
Director who is removed due to the User who nominated them ceasing to
be an Eligible Institution.\11\
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\10\ Eligible User is defined in the Appendix as a User who is
not connected with an existing director and who has not served
notice termination its clearing relationship with LCH SA or LCH Ltd.
\11\ As noted above, the term Eligible Institution is defined in
the Articles of Association of LCH Group and means, among things,
inter-dealer brokers, clearing members, and indirect users. See
Notice, 90 FR at 45289, n.10.
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LCH SA is making this change to reflect the current number of Users
that are shareholders of LCH Group. Due to an increase in London Stock
Exchange Group's ownership interest in LCH Group, only eleven financial
firms remain as shareholders of LCH Group.\12\ Of these remaining
shareholders, five have not previously indicated a desire to nominate a
User Director.\13\ Thus, the pool of firms which are both shareholders
of LCH Group and Users have decreased. To help ensure that a sufficient
number of firms that are Users are interested in nominating directors
to the Board, LCH SA is removing the requirement that a User Director
be nominated by a User who is also a shareholder of LCH Group.
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\12\ Notice, 90 FR at 45289.
\13\ Id.
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Finally, LCH SA is increasing the number of User Directors by one
to maintain its current number of directors following the removal of
the director previously nominated by Euronext.
C. LSEG Director
Currently LSEG has the right to nominate one director to the Board.
The Proposed Rule Change would increase the number of directors
nominated by LSEG to three. The Proposed Rule Change would amend
Article 2.1.4 of the Nomination Committee ToR to reflect the increase
to three.
The two additional directors nominated by LSEG would take the place
of the LCH Group CEO and LSEG Chief Risk Officer (``CRO''). Article 2.3
of the Nomination Committee ToR currently states that the Board will
include, as directors, the LCH SA CEO, LCH Group CEO, and the LSEG CRO.
The Proposed Rule Change would amend Article 2.3 to remove references
to the LCH Group CEO and the LSEG CRO.
Elsewhere in the Nomination Committee ToR, the Proposed Rule Change
would update references to LSEG directors to clarify that the directors
nominated by LSEG will now be three rather than one. The Proposed Rule
Change also would add a reference to LSEG directors in Article 7. As
amended, Article 7 would provide that LSEG directors, as well as the
LCH SA CEO, are not subject to term limits for service on the Board.
LCH SA is making this change for two reasons. First, the LCH Group
CEO has stepped down as a member of the Board of LCH SA.\14\ To replace
that individual as director on the Board, LCH SA is proposing to grant
LSEG the ability to nominate an additional director. Second, revising
Article 2.3 to remove specific references to the LSEG CRO simplifies
the appointment of the LSEG directors by not limiting those directors
to persons serving a specific role at LSEG. Thus, under the proposed
rule change, LSEG could still appoint its CRO to serve on the LCH SA
board, but LSEG would not be required to do so.
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\14\ Notice, 90 FR at 45289.
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D. Other Changes
The proposed rule change also would revise certain articles of the
Board ToR to clarify that certain personnel, such as the LCH SA CEO,
may be male or female.
III. Discussion and Commission Findings
Section 19(b)(2)(C) of the Act directs 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 such
organization.\15\ 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.'' \16\
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\15\ 15 U.S.C. 78s(b)(2)(C).
\16\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR
201.700(b)(3).
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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,\17\ 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.\18\ 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.\19\
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\17\ Id.
\18\ Id.
\19\ Susquehanna Int'l Group, LLP v. Securities and Exchange
Commission, 866 F.3d 442, 447 (D.C. Cir. 2017).
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After carefully considering the Proposed Rule Change, the
Commission finds that the Proposed Rule Change is consistent with the
requirements of the 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
Section 17A(b)(3)(C) of the Act \20\ and Rule 17ad-22(e)(2)(i).\21\
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\20\ 15 U.S.C. 78q-1(b)(3)(C).
\21\ 17 CFR 240.17ad-22(e)(2)(i).
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A. Section 17A(b)(3)(C)
Section 17A(b)(3)(C) of the Act requires, among other things, that
the rules of LCH SA assure a fair representation of its shareholders
(or members) and participants in the selection of its directors and
administration of its affairs.\22\ As noted above, the Proposed Rule
Change would increase the number of directors nominated by Users from
two to three and would remove the requirement that a User be a
shareholder of LCH Group to nominate a director. Users could include
among others, inter-dealer brokers, clearing members, and indirect
users. By removing the requirement that a User be a shareholder of LCH
Group, the Proposed Rule Change would expand the pool of Users that
could nominate directors to the Board. This change, and increasing the
number of User directors, would help assure a fair representation of
LCH SA's participants in the selection of its directors, consistent
with Section 17A(b)(3)(C) of the Act.\23\
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\22\ 15 U.S.C. 78q-1(b)(3)(C).
\23\ 15 U.S.C. 78q-1(b)(3)(C).
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Moreover, the Proposed Rule Change would increase the number of
directors nominated by LSEG. As noted above, LSEG is an indirect
shareholder of LCH SA. By increasing the number of directors that LSEG
can select, the Proposed Rule Change would help assure a fair
representation of LCH SA's shareholders in the selection of its
directors, consistent with Section 17A(b)(3)(C) of the Act.\24\
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\24\ 15 U.S.C. 78q-1(b)(3)(C).
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Accordingly, the Commission finds that the Proposed Rule Change is
consistent with 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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B. Rule 17ad-22(e)(2)(i)
Rule 17ad-22(e)(2)(i) requires that a covered clearing agency, such
as LCH SA, establish, implement, maintain, and enforce written policies
and procedures reasonably designed to provide for governance
arrangements that, among other things, are clear and transparent.\26\
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\26\ 17 CFR 240.17ad-22(e)(2)(i).
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As noted above, the Proposed Rule Change would eliminate the
Euronext director because of changes in the business relationship
between Euronext and LCH SA. Articles of the Board ToR and Nomination
Committee ToR that give Euronext the right to nominate a director are
no longer relevant or applicable. Deleting these provisions and
references to the Euronext director thus removes outdated and
inapplicable provisions, thereby reducing confusion and increasing
clarity.
Moreover, the Proposed Rule Change would remove the requirement
that a User be a shareholder of LCH Group to nominate a director. This
change would clarify the governance arrangements of the Board by
simplifying the conditions applicable to the selection of directors by
Users. Going forward, the Nomination Committee will no longer need to
consider if a User submitting a nominee is also a shareholder of LCH
Group.
The proposed changes to directors nominated by LSEG would also
simplify and clarify the governance arrangements for selecting these
directors. As noted above, the Proposed Rule Change would replace a
requirement that the LCH Group CEO and the LSEG CRO be directors with a
more general requirement that LSEG appoint three directors (including
the one director LSEG already appoints). The Proposed Rule Change also
would update references, as needed, to account for LSEG nominating
additional directors. Again, these changes would make LCH SA's
governance arrangements clearer by replacing a specific requirement
with one that is more general and easier to apply.
Finally, LCH SA's proposed changes also include amendments to
reflect that certain personnel, such as the LCH SA CEO, may be male or
female, which clarifies the previous iteration of these provisions.
Accordingly, the Commission finds that the Proposed Rule Change is
consistent with the requirements of Rule 17ad-22(e)(2)(i).\27\
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\27\ 17 CFR 240.17ad-22(e)(2)(i).
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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, with the requirements of Section 17A(b)(3)(C) of the
Act \28\ and Rule 17ad-22(e)(2)(i).\29\
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\28\ 15 U.S.C. 78q-1(b)(3)(C).
\29\ 17 CFR 240.17ad-22(e)(2)(i).
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It is therefore ordered pursuant to Section 19(b)(2) of the Act
\30\ that the proposed rule change (SR-LCH SA-2025-008) be, and hereby
is, approved.\31\
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\30\ 15 U.S.C. 78s(b)(2).
\31\ In approving the proposed rule change, the Commission
considered the proposal's impact 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.\32\
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\32\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-23067 Filed 12-16-25; 8:45 am]
BILLING CODE 8011-01-P