62118 Federal Register / Vol. 88, No. 173 / Friday, September 8, 2023 / Notices 

21 17 CFR 200.30–3(a)(12), (59). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3Securities Exchange Act Release No. 97888 (July 

13, 2023), 88 FR 46221 (July 19, 2023) (File No. SR– 

LCH–2023–005) (‘‘Notice’’). 

4Capitalized terms used but not defined herein 

have the meanings specified in the LCH SA Rule 

Book (‘‘Rule Book’’), CDS Clearing Supplement 

(‘‘Supplement’’), CDS Clearing Procedures 

(‘‘Procedures’’), and FCM/BD CDS Clearing 

Regulations (‘‘Regulations’’), as applicable. 

5See Order Approving Proposed Rule Change to 

Adopt ICC’s Enhanced Margin Methodology, 

Exchange Act Release No. 66001 (Dec. 16, 2011). 

6Exchange Act Release 34–93501 Order Granting 

Conditional Exemptions Under the Securities 

Exchange Act of 1934 in Connection With the 

Portfolio Margining of Cleared Swaps and SecurityBased Swaps That Are Credit Default Swaps’’, 86 

FR 61357 (November 5, 2021) (‘‘Portfolio Margining 

Order’’). The Portfolio Margining Order replaced a 

similar Commission order issued in 2012. See Order 

Granting Conditional Exemptions under the 

Securities Exchange Act of 1934 in Connection with 

Portfolio Margining of Swaps and Security-based 

Swaps, Exchange Act Release No. 68433 (Dec. 12, 

2012) 77 FR 75211 (Dec. 19, 2012). 

7See Treatment of Funds Held in Connection 

with Clearing by LCH SA of Single-Name Credit 

Default Swaps, Including Spun-Out Component 

Transactions (Nov. 1, 2021), available at https://

www.cftc.gov/media/6711/lchsa4dorder11022021/ 

download. 

8The Proposed Rule Change would define the 

term ‘‘FCM/BD Portfolio Margining Transaction’’ to 

mean an FCM/BD Cleared Transaction that is an 

SBS and which is held in the FCM/BD Swaps Client 

Account Structure pursuant to the Portfolio 

Margining Program. The Proposed Rule Change 

would add references to this new defined term, 

where relevant, in the Regulations, the Procedures, 

and the Rule Book. 

9The Definitions section of the Regulations will 

be amended to define the ‘‘Portfolio Margining 

Program’’ by making a direct reference to 

Regulation 7(a) in the Regulations. 

10A ‘‘Clearing Member’’ is defined as a general 

member or a select member, as the context requires. 

SR–NYSEARCA–2023–57 and should be 

submitted on or before September 29, 

2023. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.21

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–19357 Filed 9–7–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–98276; File No. SR–LCH 

SA–2023–005] 

Self-Regulatory Organizations; LCH 

SA; Order Approving Proposed Rule 

Change Relating to Portfolio Margining 

September 1, 2023. 

I. Introduction 

On May 30, 2023, 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 (‘‘Proposed Rule 

Change’’) to revise its portfolio 

margining program (‘‘Program’’) and 

make other unrelated changes. The 

Proposed Rule Change was published 

for comment in the Federal Register on 

July 19, 2023.3 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. 

II. Description of the Proposed Rule 

Change 

LCH SA is a clearing agency that 

offers clearing of, among other things, 

credit-default swaps (‘‘CDS’’).4 LCH SA 

is registered with the Commission for 

clearing CDS that are security-based 

swaps (‘‘SBS’’) and with the Commodity 

Futures Trading Commission (‘‘CFTC’’) 

for clearing CDS that are swaps. As part 

of its CDS clearing business, LCH offers 

clearing of CDS submitted by Clearing 

Members on behalf of their U.S. clients. 

As part of this U.S. client clearing, LCH 

previously proposed, and the 

Commission approved, certain changes 

to its rules and procedures to allow for 

portfolio margining.5

Portfolio margining is the practice by 

which transactions in SBS are cleared 

and held on a commingled basis with 

transactions in swaps. Under such a 

portfolio margining arrangement, 

Clearing Members are able to maintain 

reduced levels of margin that are 

commensurate with the risks of the 

portfolio based on correlations in a 

Clearing Member’s cleared CDS 

positions consisting of both swaps and 

SBS. LCH is required to conduct its 

portfolio margining program pursuant to 

the terms and conditions of an 

exemptive order issued by the 

Commission,6 as well as an exemptive 

order issued by the Commodity Futures 

Trading Commission (‘‘CFTC’’).7 Under 

these orders, LCH SA’s Clearing 

Members that are registered future 

commission merchants (‘‘FCM’’) and 

broker-dealers (‘‘BD’’) are authorized to 

clear and hold SBS transactions a 

commingled basis with cleared swaps 

on behalf of their clients (‘‘FCM/BD 

Clients’’). 

The purpose of the Proposed Rule 

Change is to revise and update LCH 

SA’s portfolio margining program (the 

‘‘Program’’). The Proposed Rule Change 

would amend certain provisions of the 

Rule Book and Procedures regarding 

collateral, the client collateral buffer, 

and the release of collateral to a Clearing 

Member. The Proposed Rule Change 

would update LCH SA’s Liquidity Risk 

Modelling Framework (‘‘LRMF’’) with 

respect to the liquidity resources and 

requirements applicable to FCM/BD 

Clearing Members. Finally, The 

Proposed Rule Change will also make 

other miscellaneous amendments to 

LCH SA’s Rule Book and Procedures. 

These miscellaneous amendments cover 

Time References, Real Time Session, 

and Personnel Requirements. 

A. Portfolio Margining Program 

As discussed above, LCH first 

established the Program in 2021. 

Currently, the basis for the Program is 

primarily Article 6.2.1.1 of the Rule 

Book and Section 3 of the Procedures. 

As discussed further below, the 

Proposed Rule Change would delete 

Article 6.2.1.1 from the Rule Book, 

replace it with a new Regulation 7, and 

revise Section 3 of the Procedures. 

Article 6.2.1.1(iii) of the Rule Book and 

Regulation 7 

Article 6.2.1.1(iii) currently provides 

that an FCM/BD Clearing Member that 

is both an FCM and a BD may elect to 

clear and hold FCM/BD Cleared 

Transactions that are SBS for FCM/BD 

Clients in the FCM/BD Swaps Client 

Account Structure on a commingled 

basis with Cleared Swaps and margin 

such combined positions on a portfolio 

basis in compliance with Applicable 

Laws, provided that each FCM/BD 

Client is an eligible contract participant 

as defined in Section 1a(18) of the 

Commodity Exchange Act. As 

mentioned, the Proposed Rule Change 

would delete this provision and replace 

with a new Regulation 7, as part of the 

FCM/BD CDS Clearing Regulations. 

New Regulation 7 would maintain the 

requirements currently found in Article 

6.2.1.1(iii) while also clarifying 

operation of the program. 

Paragraph (a) of Regulation 7, In 

General, would define Program as the 

ability of FCM/BD Clearing Members, 

on behalf of their FCM/BD clients, to 

portfolio margin FCM/BD Cleared 

Transactions 8 that are SBS with FCM/ 

BD Cleared Transactions that are 

Cleared Swaps.9

Paragraph (b) of Regulation 7, 

Participation, would state that FCM/BD 

Clearing Members may participate in 

the Program by providing LCH SA 

materials that LCH SA may require from 

time to time.10 This section would also 

provide that, in providing these 

materials to LCH SA, the FCM/BD 

Clearing Member shall be deemed to 

represent that: (i) it is both an FCM and 

a BD and neither such status has been 


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11As mentioned above, the term ‘‘FCM/BD 

Portfolio Margining Transaction’’ would mean an 

FCM/BD Cleared Transaction that is an SBS and 

which is held in the FCM/BD Swaps Client Account 

Structure pursuant to the Portfolio Margining 

Program. The Proposed Rule Change would add 

references to this new defined term, where relevant, 

in the Regulations, the Procedures, and the Rule 

Book. See supra note 8. 

12Cleared Swaps Client Segregated Depository 

account is defined as the omnibus account (which 

will consist of one or more accounts at one or more 

permitted depositories which are commingled for 

purposes of the applicable provisions of the 

Commodity Exchange Act and Commodity Future 

Trading Commission (‘‘CFTC’’) regulations) 

maintained by LCH SA for the benefit of cleared 

swaps customers of its FCM/BD Clearing Members. 13LCH SBS Client Segregated Depository Account 

will be defined in the Regulations to mean one or 

more accounts at one or more Banks which are 

commingled for purposes of the applicable 

provisions of the Exchange Act and SEC 

Regulations) maintained by LCH SA for the benefit 

of SBS customers of its FCM/BD Clearing Members 

with a bank, which is segregated in accordance with 

the Exchange Act and Commission Regulations and 

contains collateral deposited by such FCM/BD 

Clearing Members on behalf of their SBS customers 

in connection with FCM/BD Cleared Transactions 

that are SBS cleared for such SBS customers by 

such FCM/BD Clearing Members, excluding any 

FCM/BD portfolio margining transactions. 

14The Regulations define an LCH SBS Client 

Segregated Depository Account to mean an omnibus 

account (which will consist of one or more accounts 

at one or more Banks which are commingled for 

purposes of the applicable provisions of the 

Exchange Act and SEC Regulations) maintained by 

LCH SA for the benefit of SBS Customers of its 

FCM/BD Clearing Members with a Bank, which is 

segregated in accordance with the Exchange Act 

and SEC Regulations and contains Collateral 

deposited by such FCM/BD Clearing Members on 

behalf of their SBS Customers in connection with 

FCM/BD Cleared Transactions that are SBS cleared 

for such SBS Customers by such FCM/BD Clearing 

Members, excluding any FCM/BD Portfolio 

Margining Transactions. 

15As defined in the Rule Book, TARGET2 is the 

system known as Trans-European Automated Realtime Gross Settlement Express Transfer 2. A 

‘‘TARGET2 Account’’ is an account held by a 

TARGET2 participant in TARGET2 payment 

module with a Eurosystem Central Bank. 

16 ‘‘BNYM US’’ and ‘‘Eligible Collateral’’ are 

defined below. 

revoked; (ii) it is in compliance with the 

applicable requirements of the Portfolio 

Margining Order and the CFTC Portfolio 

Margining Order; and (iii) each relevant 

FCM/BD Client is an eligible contract 

participant as defined in Section 1a(18) 

of the Commodity Exchange Act. 

Paragraph (c) of Regulation 7, 

Operation, would provide that, 

following the portfolio margining start 

date, all FCM/BD Cleared Transactions 

that are SBS for the relevant FCM/BD 

Client will be treated as FCM/BD 

Portfolio Margining Transactions and 

will be held (along with any associated 

collateral) in the FCM/BD Swaps Client 

Account Structure on a commingled 

basis with FCM/BD Cleared 

Transactions that are Cleared Swaps for 

such FCM/BD client. Further, all such 

FCM/BD Portfolio Margining 

Transactions will constitute Cleared 

Swaps for purposes of the CDS Clearing 

Rules and the resulting combined 

positions will be margined on a 

portfolio basis in respect of the relevant 

FCM/BD Client. Finally, this section 

would provide that the relevant FCM/ 

BD Client shall be deemed to 

acknowledge and agree that any 

property used to margin, guarantee or 

secure the FCM/BD Portfolio Margining 

Transactions will not receive customer 

protection treatment under the 

Exchange Act or Securities Investor 

Protection Act of 1970 and will instead 

receive customer protection treatment 

under the commodity broker liquidation 

provisions of the U.S. Bankruptcy Code 

and the rules and regulations 

promulgated thereunder. 

In addition to new Regulation 7, the 

Proposed Rule Change would amend 

other sections of the Regulations to 

make conforming amendments. In the 

definitions section, the Proposed Rule 

Change would add, among other things, 

add defined terms for Portfolio 

Margining Program, SEC Portfolio 

Margining Order, and FCM/BD Portfolio 

Margining Transaction.11 The Proposed 

Rule Change also would amend the 

definition of the LCH Cleared Swaps 

Client Segregated Depository Account to 

include FCM/BD Portfolio Margining 

Transactions.12 Similarly, the Proposed 

Rule Change would amend the 

definition of the LCH SBS Client 

Segregated Depository Account to 

exclude any FCM/BD Portfolio 

Margining Transactions.13

The Proposed Rule Change also 

would amend Regulation 2, which 

covers depository accounts. Going 

forward, LCH SA will assume that all 

FCM/BD clients will elect to portfolio 

margin all their SBS transactions in an 

FCM/BD Cleared Swaps Client 

Segregated Depository Account rather 

than a separate FCM/BD SBS Client 

Segregated Depository Account. The 

Proposed Rule Change therefore would 

amend Regulation 2(a) so that FCM/BD 

Clearing Members would establish and 

maintain an FCM/BD SBS Client 

Segregated Depository Account only if 

required. The Proposed Rule Change 

also would amend Regulation 2(b) to 

similarly provide that LCH SA would 

only establish and maintain an LCH SBS 

Client Segregated Depository Account 14

for an FCM/BD Clearing Member upon 

request. Finally, the Proposed Rule 

Change would amend Regulation 2(c) to 

confirm that all Collateral deposited 

with LCH SA by FCM/BD Clearing 

Members in connection with cleared 

swaps will include collateral deposited 

in connection with FCM/BD Portfolio 

Margining Transactions and will be held 

in an LCH cleared swaps segregated 

depository account. 

The Procedures 

Section 3 of the Procedures covers 

Collateral, Variation Margin, and Cash 

Payments. The Proposed Rule Change 

would revise Section 3 in the 

expectation that all FCM/BD clients will 

elect to portfolio margin their SBS 

transactions. 

To that end, the Proposed Rule 

Change would amend Section 3 so that 

LCH SA would establish and maintain 

SBS-related accounts only when 

required. Specifically, LCH SA would 

maintain the following accounts only 

when required: (i) an FCM/BD SBS 

Client Collateral Account to record the 

Collateral held by LCH SA for the 

benefit of such FCM/BD Clearing 

Member’s SBS customers with respect 

to SBS; (ii) a TARGET2 Account 15 used 

to make Collateral calls in relation to the 

Client Margin Requirements with 

respect to SBS; (iii) a U.S. Dollar 

(‘‘USD’’) account to credit USD Cash 

Collateral which is transferred by FCM/ 

BD Clearing Members to be recorded in 

their FCM/BD SBS Client Collateral 

Account; and (iv) a segregated 

depository account in the Bank of New 

York Mellon (‘‘BNYM’’) US to register 

BNYM eligible collateral 16 which is 

transferred by FCM/BD Clearing 

Members in connection with SBS other 

than SBS that constitute FCM/BD 

Portfolio Margining Transactions. Going 

forward, any reference to these accounts 

would be preceded by the condition that 

such account is established. 

Similarly, the Proposed Rule Change 

would amend Section 3 so that FCM/BD 

Clearing Members would establish and 

maintain SBS-related accounts only 

when required. Specifically, FCM/BD 

Clearing Members would maintain the 

following accounts only when required: 

(i) a TARGET2 Account for the purposes 

of the Collateral Calls in respect of its 

Client Margin Requirements with 

respect to SBS; (ii) a BNYM cash 

account for the purposes of satisfying its 

Cash Payments obligations in respect of 

its Client Cleared Transactions that are 

SBS. Going forward, any reference to 

these accounts would be preceded by 

the condition that such account is 

established. 

Rule Book 

The Proposed Rule Change would 

amend certain definitions set out in the 

Rule Book to recognize that FCM/BD 

Portfolio Margining Transactions will be 

treated as Cleared Swaps and governed 

by new FCM/BD Regulation 7. As with 


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17 In particular, the Proposed Rule Change would 

remove references to Article 6.2.1.1(iii). As noted 

earlier, with the implementation of the more 

comprehensive Portfolio Margining Program set out 

in Section 7 of the Regulations, the Proposed Rule 

Change would delete Article 6.2.1.1(iii) as 

unnecessary. 

18The Proposed Rule Change would add a 

definition for FCM/BD Portfolio Margining 

Transaction to the Rule Book. That term would 

have the same meaning as set out in the 

Regulations. As discussed above, under the 

Regulations, an FCM/BD Portfolio Margining 

Transaction is an FCM/BD Cleared Transaction that 

is an SBS and which is held in the FCM/BD Swaps 

Client Account Structure pursuant to the Portfolio 

Margining Program. 

19The term ‘‘Eligible Collateral’’ is defined as 

securities and other types of non-Cash Collateral as 

set out in Section 3 of the Procedures accepted by 

LCH SA for the purposes of satisfying a Clearing 

Member’s Margin Requirements or novating 

Original Transaction; the term ‘‘Eligible Currency’’ 

is defined to mean cash in such currencies as set 

out in Section 3 of the Procedures accepted by LCH 

SA as Cash Collateral. The term ‘‘Collateral’’ is 

defined as Eligible Collateral and/or Cash 

Collateral. The term ‘‘Cash Collateral’’ is defined as 

any cash provided in an Eligible Currency which 

is transferred to LCH SA by way of full title transfer 

for the purpose of satisfying a Clearing Member’s 

Margin Requirements and/or its Contribution 

Requirement and/or novating Original Transactions, 

as the case may be. 

20A CCM is a Clearing Member of LCH SA and 

party to the CDS admission agreement. If a CCM 

wishes to provide CDS CCM client clearing 

services, it must either (i) be a general member or 

(ii) provide such CDS CCM client clearing services 

to its affiliated firms only. A Clearing Member 

cannot be admitted as a CCM and an FCM/BD 

Clearing Member at the same time. See Notice, 88 

FR at 46229. The Proposed Rule Change would 

update the definition of CCM in the Rule Book to 

replace an incorrect reference to FCM/BD Clearing 

Member. 

21LCH SA explained in the Notice that it LCH SA 

will not allow the transfer of Pound Sterling on 

behalf of FCM/BD Clients to be credited to an LCH 

SA’s account opened with Euroclear Bank because 

Euroclear Bank is not an eligible Permitted 

Depository within the meaning of CFTC Regulations 

22.1 and 22.4. See Notice, 88 FR at 46225. 

Article 6.2.1.1(iii), discussed earlier, the 

current definitions implement portfolio 

margining as adopted by LCH SA in 

2021. With the adoption of new FCM/ 

BD Regulation 7, the Proposed Rule 

Change would revise references to 

current definitions or Articles in the 

Rule Book to reflect the new Portfolio 

Margining Program.17

The Proposed Rule Change first 

would amend the defined term Cleared 

Swap. Currently, Cleared Swap is 

defined as an FCM/BD cleared 

transaction (i) constituting a Cleared 

Swap as defined in CFTC Regulation 

22.1 or (ii) constituting an SBS that is 

held in the FCM/BD swaps client 

account structure set out in Article 

6.2.1.1(i) in pursuant to Article 

6.2.1.1(iii). The Proposed Rule Change 

would delete most of (ii) and replace 

with a reference to FCM/BD Portfolio 

Margining Transaction.18 Under the 

Proposed Rule Change, a Cleared Swap 

would be an FCM/BD cleared 

transaction (i) constituting a Cleared 

Swap as defined in CFTC Regulation 

22.1 or (ii) constituting an FCM/ND 

Portfolio Margining Transaction. 

The Proposed Rule Change next 

would the defined term Cleared Swaps 

Customer. Cleared Swaps Customer is 

currently defined as (i) a Cleared Swaps 

Customer, as defined in CFTC 

Regulation 22.1, of an FCM/BD Clearing 

Member with respect to Cleared Swaps, 

that is an eligible contract participant, 

and (ii) a person that would be a Cleared 

Swaps Customer of an FCM/BD Clearing 

Member with respect to any transaction 

constituting an SBS that is a Cleared 

Swap. The Proposed Rule Change 

would amend (ii) to include a person 

that is treated as a Cleared Swaps 

Customer in connection with 

maintaining FCM/BD Portfolio 

Margining Transactions. Under the 

Proposed Rule Change, a Cleared Swaps 

Customer would be (i) a Cleared Swaps 

Customer, as defined in CFTC 

Regulation 22.1, of an FCM/BD Clearing 

Member with respect to Cleared Swaps, 

that is an eligible contract participant, 

and (ii) a person that is treated as a 

Cleared Swaps Customer in connection 

with maintaining FCM/BD Portfolio 

Margining Transactions in the FCM/BD 

Swaps Client Account Structure of an 

FCM/BD Clearing Member pursuant to 

the Portfolio Margining Program. 

The Proposed Rule Change would 

likewise amend the definition of 

Cleared Swaps Customer Collateral. 

Currently, Cleared Swaps Customer 

Collateral is Cleared Swaps Customer 

Collateral, as defined in CFTC 

Regulation 22.1, with respect to Cleared 

Swaps, including with respect to any 

transaction constituting an SBS that is a 

Cleared Swap, as if such transaction is 

a Cleared Swap for purposes of the 

definition of Cleared Swaps Customer 

Collateral in CFTC Regulation 22.1. As 

revised, this definition will provide that 

Cleared Swaps Customer Collateral is 

Cleared Swaps Customer Collateral, as 

defined in CFTC Regulation 22.1, with 

respect to Cleared Swaps, including 

with respect to any transaction 

constituting an SBS that is an FCM/BD 

Portfolio Margining Transaction. 

The Rule Book also contains 

definitions related to the accounts 

associated with customer transactions in 

SBS and Swaps. Among others, these 

include the FCM/BD SBS Client 

Collateral Account, FCM/BD Swaps 

Client Collateral Account, FCM/BD SBS 

Client Financial Account, FCM/BD 

Swaps Client Financial Account, FCM/ 

BD SBS Client Margin Account, FCM/ 

BD Swaps Client Margin Account, FCM/ 

BD SBS Client Trade Account, and 

FCM/BD Swaps Client Trade Account. 

With respect to these defined terms, the 

Proposed Rule Change would (i) remove 

references to Article 6.2.1.1(iii) (which 

is being deleted, as discussed above) 

and (ii) add references to the new 

defined term FCM/BD Portfolio 

Margining Transaction. 

Finally, the Proposed Rule Change 

would add a new defined term for 

Portfolio Margining Program. That term 

would have the same meaning as set out 

in the Regulations. 

B. Collateral and Accounts 

The Proposed Rule Change would 

also amend provisions of the Rule Book 

and the Procedures regarding permitted 

Collateral (including Eligible Collateral 

and Eligible Currency 19), the Client 

Collateral Buffer, and the release of 

collateral to a Clearing Member. 

Eligible Collateral and Eligible Currency 

With regard to Eligible Collateral, the 

Proposed Rule Change would amend 

Section 3 of the Procedures to replace 

certain references to US Treasury Bills 

(‘‘US T-Bills’’). Specifically, the 

Proposed Rule Change would delete 

references to US T-Bills recorded in an 

FCM/BD Clearing Member’s FCM/BD 

Client Collateral Account. The Proposed 

Rule Change would refer instead to 

BNYM US Eligible Collateral. This new 

defined term would mean Eligible 

Collateral to be held in LCH SA’s 

segregated depository account opened 

in the books BNYM US. LCH SA is 

making this particular change because 

there are also other securities, in 

addition to US T-Bills, that could be 

held with BNYM. 

With regard to Eligible Currency, the 

Proposed Rule Change would amend the 

definition to provide that Pound 

Sterling is only eligible in certain 

circumstances. Going forward, Pound 

Sterling will no longer be an Eligible 

Currency for purposes of the FCM/BD 

Client Account Structure of an FCM/BD 

Clearing Member. As a result, Eligible 

Currencies for FCM/BD Client Account 

Structure will be limited to the Euro and 

USD. Practically speaking, this means 

going forward CCM Clearing Members 20

can deposit Pound Sterling with respect 

to their Clients while FCM/BD Clearing 

Members cannot. LCH is making this 

change to comply with certain 

regulatory requirements applicable to 

client collateral.21

Further to this point, the Proposed 

Rule Change would delete from Section 

3.8 provisions that currently require 

LCH SA to open certain bank accounts. 

LCH SA uses these bank accounts to 


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22The FCM/BD Client Collateral Buffer’s 

definition includes both the FCM/BD Swaps Client 

Collateral Buffer and the FCM/BD SBS Client 

Collateral Buffer. The FCM/BD Swaps Client 

Collateral Buffer is defined in the Rule Book to 

mean the aggregate value of Collateral transferred 

by an FCM/BD Clearing Member to LCH SA, 

comprising such FCM/BD Clearing Member’s own 

property, and recorded in such FCM/BD Clearing 

Member’s FCM/BD Swaps Buffer Account which 

may be used by LCH SA to meet obligations in 

respect of the Cleared Swaps of Cleared Swaps 

Customers, including for the purpose of satisfying 

the notional and collateral checks performed by 

LCH SA in respect of eligible intraday transactions. 

The FCM/BD Swaps Client Collateral Buffer is 

similarly defined. 

23Cash Collateral is defined in the Rule Book as 

any cash provided in an Eligible Currency which 

is transferred to LCH SA by way of full title transfer 

in accordance with Section 3 of the Procedures for 

the purpose of satisfying a Clearing Member’s 

Margin Requirements and/or its Contribution 

Requirement and/or novating Original Transactions, 

as the case may be. 

24The House Excess Collateral Threshold is The 

minimum value of Collateral, that a CCM or FCM/ 

BD Clearing Member wishes to maintain as House 

Excess Collateral in its House Collateral Account. 

credit non-Euro, non-USD Cash 

Collateral which is transferred by an 

FCM/BD Clearing Member to be 

recorded in its FCM/BD Swaps Client 

Collateral Account or FCM/BD SBS 

Client Collateral Account. Because LCH 

SA will only treat Euro and USD as 

Eligible Currency for FCB/BD Clients 

going forward, LCH SA would no longer 

need to establish these accounts. 

The Proposed Rule Change would 

also make this same change to Client 

Collateral Buffer, including the FCM/BD 

Client Collateral Buffer.22 The Client 

Collateral Buffer is the value of 

Collateral transferred by a Clearing 

Member to LCH SA, which is the 

Clearing Member’s own property, and 

which allows that Clearing Member to 

satisfy margin requirements in respect 

of a Client’s account. The Clearing 

Member could use the buffer, for 

example, to satisfy the Notional and 

Collateral Checks performed by LCH SA 

in respect of Eligible Intraday 

Transactions comprising one or more 

Client Trade Legs. 

Currently, LCH SA accepts as Client 

Collateral Buffer only Eurodenominated Cash Collateral. Under the 

Proposed Rule Change, LCH SA would 

accept (i) Cash Collateral 23 or Eligible 

Collateral as CCM Client Collateral 

Buffer and (i) Cash Collateral or Eligible 

Collateral as being acceptable by LCH 

SA to be registered in the FCM/BD 

Client Collateral Account, as FCM/BD 

Client Collateral Buffer. As discussed 

above, Pound Sterling would no longer 

be an Eligible Currency for purposes of 

the FCM/BD Client Account Structure of 

an FCM/BD Clearing Member going 

forward. Thus, this change would mean 

in effect that LCH SA would accept 

Pound Sterling as CCM Client Collateral 

Buffer but not as FCM/BD Client 

Collateral Buffer. 

Section 3 of the Procedures addresses 

how Clearing Members may transfer 

Collateral to LCH SA. The Proposed 

Rule Change would amend these 

provisions to effectuate the distinction 

between Pound Sterling as collateral, 

and Euros/USD. Specifically, the 

Proposed Rule Change would amend 

Sections 3.7(f), 3.8 (f), 3.8(g), 3.10, 

3.15(a), and 3.17(a) to refer specifically 

to the transfer of Euro-denominated 

cash, non-Euro denominated Cash 

Collateral, USD-denominated Cash 

Collateral, Eligible Collateral provided 

with full title transfer, Eligible 

Collateral, and BNYM Eligible 

Collateral, respectively, to be 

maintained as Client Collateral Buffer, 

provided that such Clearing Member is 

permitted to maintain that type of 

Collateral as Client Collateral Buffer. 

Finally, the Proposed Rule Change 

would amend Appendix 1 of the Rule 

Book to effectuate the distinction 

between Pound Sterling as collateral, 

and Euros/USD. Appendix 1 of the Rule 

Book describes LCH SA’s default 

management process for its CDS 

business. Under Appendix 1 currently, 

in the event of an Event of Default 

occurring in respect of a Clearing 

Member, LCH SA will: (i) if the 

Defaulting Clearing Member is a CCM, 

transfer an amount of Cash Collateral 

denominated in Euro which is equal to 

the CCM Allocated Client Collateral 

Buffer for the relevant CCM Client 

Account Structure from the CCM House 

Collateral Account to the relevant CCM 

Client Collateral Account; or (ii) if the 

Defaulting Clearing Member is an FCM/ 

BD Clearing Member, transfer an 

amount of Collateral which is equal to 

the FCM/BD Allocated Client Collateral 

Buffer for the relevant FCM/BD Client 

Margin Requirement from the FCM/BD 

Buffer Financial Account to the relevant 

FCM/BD Client Financial Account. 

Since an amount of Collateral equal to 

the value of the CCM Allocated Client 

Collateral Buffer needs to be transferred 

from the House Collateral Account of a 

Defaulting Clearing Member that is a 

CCM to the relevant CCM Client 

Collateral Account, and since the Client 

Collateral Buffer for CCMs could be 

maintained in Pounds as well as Euro, 

LCH SA would need first to liquidate 

into Euro any Cash Collateral that is not 

Euro. The Proposed Rule Change would 

make equivalent changes to the 

provisions dealing with the transfer of 

an amount in Euro equivalent to the 

CCM Allocated Client Collateral Buffer 

of a CCM in the event of: (i) an early 

termination trigger date, in accordance 

with Article 8.5.2 (a)(i) and (b)(i) of 

Appendix 1 of the Rule Book and (ii) an 

LCH Default in accordance with the 

Article 1.3.1.3 (iv) of the Rule Book, 

save that under these circumstances, 

LCH SA would not be permitted to 

liquidate any pledged Eligible Collateral 

taken into account in that CCM Client 

Collateral Buffer. 

Client Collateral Buffer Threshold and 

Return of Excess Collateral 

Currently, LCH SA allows Clearing 

Members to set a minimum value of 

Collateral to maintain as Client 

Collateral Buffer. This amount is known 

as the ‘‘Client Collateral Buffer 

Threshold.’’ Currently, if the value of 

the Collateral attributed to the FCM/BD 

Buffer Financial Account exceeds the 

FCM/BD Client Collateral Buffer 

Threshold, the amount of the excess, if 

related to Cleared Swaps, will be 

reclassified as FCM/BD Swaps 

Unallocated Client Excess Collateral 

and, if related to SBS will be reclassified 

as FCM/BD SBS Client Excess 

Collateral. The Proposed Rule Change 

would update how Clearing Members 

can update or increase the amount of 

the threshold, as well as revise the 

treatment of Collateral that exceeds the 

threshold. 

With respect to the amount of the 

threshold, currently Section 2.3(d) of 

the Procedures provides that a Clearing 

Member looking to change the Client 

Collateral Buffer Threshold or House 

Excess Collateral Threshold 24 must 

submit a request to LCH on the business 

day before the intended change. Thus, 

the change is not implemented until the 

next business day. The Proposed Rule 

Change would revise Section 2.3(d) to 

allow Clearing Members to set or update 

these thresholds on the business day 

such request is made, instead of the next 

business day. LCH SA is making this 

change to meet Clearing Members’ 

expectations to be able to update their 

thresholds more quickly than is 

currently possible. 


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25Article 4.2.2.3 of the Rule Book further 

provides that transfers to the Client Collateral 

Buffer will be made in accordance with Section 2 

and Section 3 of the Procedures. 

26 ‘‘Client Excess Collateral’’ is defined as the 

CCM Client Excess Collateral or the FCM/BD Client 

Excess Collateral, as the context requires. 

Relatedly, the Proposed Rule Change 

would amend Article 4.2.2.3 of the Rule 

Book. It currently provides that only a 

CCM Clearing Member, and not an 

FCM/BD Clearing Member, may 

increase the amount of the Client 

Collateral Buffer. The Proposed Rule 

Change would amend this article to 

confirm that an FCM/BD Clearing 

Member may also increase the amount 

of Client Collateral Buffer above the 

Client Collateral Buffer Threshold.25

LCH SA is making the proposed 

revisions regarding the possibility for an 

FCM/BD Clearing Member to increase 

the amount of FCM/BD Client Collateral 

Buffer above the FCM/BD Client 

Collateral Buffer Threshold to provide 

for the more efficient handling of 

Collateral held on behalf of FCM/BD 

Clients. 

Given that, under the Proposed Rule 

Change, Clearing Members would be 

allowed to increase the Collateral Buffer 

Threshold, the Proposed Rule Change 

also would revise how LCH treats 

Collateral deposited in excess of that 

threshold. Currently, under Article 

4.2.2.5, where (i) the FCM/BD Margin 

Balance of an FCM/BD Client Financial 

Account exceeds the relevant FCM/BD 

Client Margin Requirement prior to the 

Morning Call or (ii) the value of the 

Collateral attributed to the FCM/BD 

Buffer Financial Account exceeds the 

FCM/BD Client Collateral Buffer 

Threshold, LCH SA treats such excess as 

FCM/BD Swaps Unallocated Client 

Excess Collateral or FCM/BD SBS Client 

Excess Collateral.26 An FCM/BD 

Clearing Member may then request the 

return of such excess collateral, subject 

to the conditions set out in Section 3 of 

the Procedures and Article 6.2.5 of the 

Rule Book. 

The proposed amendments to Article 

4.2.2.5 would remove the 

reclassification of any value of the 

Collateral above the FCM/BD Client 

Collateral Buffer Threshold as FCM/BD 

Swaps Unallocated Client Excess 

Collateral, or FCM/BD SBS Client 

Excess Collateral, where appropriate. 

Instead, if the value of the Collateral 

attributed to the FCM/BD Buffer 

Financial Account exceeds the FCM/BD 

Client Collateral Buffer Threshold, the 

FCM/BD Clearing Member may request 

to have such excess returned to it, 

subject to the conditions set out in 

Section 3 of the Procedures and Article 

6.2.5 of the Rule Book. Moreover, 

Article 4.2.2.5 as amended would also 

give FCM/BD Clearing Members the 

alternative of requesting the transfer of 

any FCM/BD Swaps Unallocated Client 

Excess Collateral, or FCM/BD SBS 

Client Excess Collateral, where 

appropriate, to the FCM/BD Buffer 

Financial Account and its 

reclassification as FCM/BD Client 

Collateral Buffer. 

Article 6.2.5.1(ii) of the Rule Book 

currently states that if a FCM/BD 

Clearing Member delivers Collateral to 

LCH SA on behalf of one or more FCM/ 

BD clients in an amount that would 

cause an FCM/BD Swaps Client 

Financial Account to contain FCM/BD 

Swaps Client Excess Collateral, then 

LCH SA may (i) reject the deposit, (ii) 

transfer the excess back to the Clearing 

Member, or (iii) accept the deposit and 

transfer the excess to the FCM/BD 

Swaps Unallocated Client Collateral 

Financial Account. The Proposed Rule 

Change would revise Article 6.2.5.1(ii) 

so that LCH SA would accept the 

deposit and treat the excess as FCM/BD 

Swaps Client Collateral Buffer. Under 

6.2.5.1(iii)(c) as amended, the FCM/BD 

Clearing Member could then request the 

return of any amount of excess FCM/BD 

Swaps Client Collateral Buffer, in 

accordance with Section 3 of the 

Procedures. 

Finally, the Proposed Rule Change 

would amend 6.2.5.1(iv)(d) to reflect the 

ability of an FCM/BD Clearing Member 

to increase the FCM/BD Swaps Client 

Collateral Buffer and treat excess 

collateral as Buffer, as discussed above. 

Currently, Article 6.2.5.1(iv)(d) states 

that upon the request of an FCM/BD 

Clearing Member, LCH SA will return 

FCM/SBS Swaps Unallocated Client 

Excess Collateral to the Clearing 

Member. In doing so, the FCM/BD 

Clearing Member represents that the 

request complies with CFTC regulations 

and that the returned Collateral will 

remain segregated as required by CFTC 

regulations and LCH SA’s Rule Book. As 

amended, an FCM/BD Clearing Member 

could request LCH SA to (i) return FCM/ 

BD Swaps Unallocated Client Excess 

Collateral to it in accordance Section 3 

of the Procedures or (ii) reclassify such 

FCM/BD Swaps Unallocated Client 

Excess Collateral as FCM/BD Swaps 

Client Collateral Buffer and record the 

value of such Collateral to the relevant 

FCM/BD Swaps Buffer Financial 

Account. In doing so, the FCM/BD 

Clearing Member would represent and 

warrant that the request complies with 

CFTC Regulations and has been made 

by an individual who is properly 

authorized to make the request. If an 

FCM/BD Clearing Member requests that 

LCH SA return FCM/BD Swaps 

Unallocated Client Excess Collateral to 

it, the Clearing Member would further 

represent to LCH SA that the Collateral 

will remain segregated as by CFTC 

Regulations and LCH SA’s CDS Clearing 

Rules. If an FCM/BD Clearing Member 

requests that LCH SA reclassify such 

FCM/BD Swaps Unallocated Client 

Excess Collateral as FCM/BD Swaps 

Client Collateral Buffer and record the 

value of such Collateral to the relevant 

FCM/BD Swaps Buffer Financial 

Account, the Clearing Member would 

further represent to LCH SA that the 

request reflects the true characterization 

of the Collateral, including in particular 

that the Collateral is the property of the 

FCM/BD Clearing Member. The FCM/ 

BD Clearing Member would also be 

required to provide such additional 

information as LCH SA may reasonably 

request. 

Article 6.2.5.2 of the Rule Book 

addresses FCM/BD SBS Excess 

Collateral and FCM/BD SBS Client 

Collateral Buffer. Article 6.2.5.2 applies 

to the FCM/BD SBS Client Account 

Structure, which LCH SA would only 

establish if required, as discussed above. 

Article 6.2.5.2 parallels the procedures 

in Article 6.2.5.1 above with regard to 

FCM/BD Swaps Client Collateral. The 

Proposed Rule Change would make the 

same amendments to Article 6.2.5.2 as 

it is making to 6.2.5.1. 

Return of Collateral 

The Proposed Rule Change would 

also amend certain provisions of Section 

3 of the Procedures to clarify the process 

by which a Clearing Member may 

request the return of Collateral. 

Specifically, the Proposed Rule Change 

would make these changes to Section 

3.7, 3.8, and 3.15. 

Section 3.7 applies to the return Eurodenominated Cash Collateral. Section 

3.7(g)(iv) currently describes how an 

FCM/BD Clearing Member may request 

the return of FCM/BD Swaps 

Unallocated Client Excess Collateral 

that is Euro-denominated Cash 

Collateral. Section 3.7(g)(v) currently 

describes how an FCM/BD Clearing 

Member may request the return of FCM/ 

BD SBS Client Excess Collateral that is 

Euro-denominated Cash Collateral. In 

either case, the Clearing Member may 

request the return of excess collateral 

provided the amount requested does not 

exceed the amount of collateral in the 

account. The Proposed Rule Change 

would combine 3.7(g)(iv) and (v) into 

single provision that would apply to any 

Euro-denominated Cash Collateral 

recorded in a Clearing Member’s FCM/ 

BD Client Collateral Account. As 

defined in the Rule Book, FCM/BD 

Client Collateral Account means an 


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27As noted above, USD is the only Eligible 

Currency and US Treasury bills are the only Eligible 

Collateral held in BNYM accounts. 

28 ‘‘Start of Real Time’’ and ‘‘End of Real Time’’ 

are defined as the time as specified in a clearing 

notice. 

FCM/BD Swaps Client Collateral 

Account and/or an FCM/BD SBS Client 

Collateral Account. Thus, this new 

provision would apply to both Swaps 

and SBS. Under this new provision, 

LCH SA would return Eurodenominated Cash Collateral recorded 

in a Clearing Member’s FCM/BD Client 

Collateral Account if LCH SA 

determines that it will continue to hold 

Collateral sufficient to cover the FCM/ 

BD Client Margin Requirement for each 

FCM/BD Client Margin Account and to 

satisfy the FCM/BD Clearing Member’s 

Client Collateral Buffer Threshold. 

Section 3.8 applies to the return of 

non-Euro-denominated cash collateral. 

Here the Proposed Rule Change would 

carry forward the distinction between 

Pound Sterling as collateral, and Euros/ 

USD discussed above. For example, the 

Proposed Rule Change would add a 

provision to explain how a CCM could 

request the return of non-Euro 

denominated Cash Collateral recorded 

as CCM Client Collateral Buffer. The 

Proposed Rule Change also would revise 

3.8(i), which describes how an FCM/BD 

Clearing Member may request the return 

of USD-denominated Cash Collateral 

recorded in its FCM/BD Client Account. 

Under the revised provision, LCH SA 

would return USD-denominated Cash 

Collateral recorded in the FCM/BD 

Client Account if it holds sufficient 

Collateral (other than that which is to be 

returned) to cover the FCM/BD Client 

Margin Requirement for each FCM/BD 

Client Margin Account and to satisfy the 

FCM/BD Clearing Member’s obligation 

in respect of its FCM/BD Client 

Collateral Buffer Threshold. These 

revisions are a result of CCM Clearing 

Members being able to use Pound 

Sterling in their Client Collateral going 

forward but not FCM/BD Clearing 

Members. 

Like this change to Section 3.8, the 

Proposed Rule Change would amend 

Section 3.10.1(c) and Section 3.10.2(d) 

to set out the same process by which a 

CCM may request the return of Eligible 

Collateral transferred with full title, on 

a bilateral basis, and pursuant to a 

triparty arrangement, respectively. The 

Proposed Rule Change would amend 

Section 3.15(b) in the same way, to set 

out the process by which a CCM may 

request the release of Pledged Eligible 

Collateral. 

Type of Accounts 

The Proposed Rule Change would 

also amend Section 3 of the Procedures 

to clarify the use of TARGET2 and 

BNYM accounts by LCH SA and its 

Clearing Members. 

With regard to TARGET2 accounts, 

the Proposed Rule Change would 

specify in 3.18(b) the TARGET2 

accounts that LCH SA would use for 

making or receiving payments in Euro. 

The Proposed Rule Change also would 

specify in 3.18(b) the TARGET2 

accounts that would be used for 

satisfying FCM/BD Clearing Members’ 

cash payment obligations with respect 

to Client Cleared Transactions. 

Relatedly, the Proposed Rule Change 

would amend Section 3.7(d)(iii) to 

provide that, in respect of the FCM/BD 

client account structure of an FCM/BD 

Clearing Member, there will be no 

aggregation of payments between Eurodenominated cash payments and Eurodenominated Cash Collateral transfers 

through TARGET2 because Eurodenominated cash payments will be 

made by using the LCH CCM Client 

TARGET 2 Account whereas the transfer 

of Euro-denominated Cash Collateral 

will be made by using the LCH FCM/BD 

swaps client TARGET2 account or the 

LCH FCM/BD SBS Client TARGET2 

Account. 

With regard to BNYM accounts,27 the 

Proposed Rule Change would amend 

Section 3.18(c) to consolidate the 

number of accounts that LCH SA 

maintains. Currently, LCH SA maintains 

separate accounts for Client transactions 

in Swaps and Client transactions in 

SBS. The Proposed Rule Change would 

remove the separate accounts and 

consolidate them into one Client 

account. Thus, going forward, LCH SA 

will maintain only two BNYM accounts, 

each for the purpose of debiting or 

crediting USD to satisfy Cash Payments 

and/or Variation Margin Collateral 

Transfer obligations. One account will 

be for a Clearing Member’s own 

transactions, and the other will be for 

the transactions of the Clearing 

Member’s Clients. LCH SA is 

consolidating these accounts in the 

expectation that all FCM/BD clients will 

elect to portfolio margin their SBS 

transactions. 

Finally, the Proposed Rule Change 

would delete from the Procedures 

references to the former time slot for the 

cash payments in respect of Client 

Variation Margin requirements of an 

FCM/BD Clearing Member given that 

time slot no longer exists. 

C. Miscellaneous Amendments 

i. Time Reference 

Article 1.2.8.1 of the Rule Book 

currently provides that, where reference 

is made in the CDS Clearing 

Documentation to a time or deadline, it 

will mean Central European Time 

(‘‘CET’’), unless otherwise stipulated. 

The Proposed Rule Change would revise 

this Article to provide that where 

reference is made in the CDS Clearing 

Documentation to a time or deadline, it 

will be understood to mean Paris Time, 

unless otherwise stipulated in the CDS 

Clearing Documentation. The Proposed 

Rule Change would remove all 

references to CET from the Procedures 

and the Supplement. With respect to the 

Supplement in particular, the Proposed 

Rule Change would provide instead that 

any reference to a time of day shall be 

deemed to be a reference to the time 

zone as set out in Section 1.2.8 of the 

Rule Book unless otherwise provided. 

The Proposed Rule Change also 

would amend Section 5.18 of the 

Procedures in this regard. Section 5.18 

currently states that all references to 

times and deadlines in Section 5.18 are 

to London local time unless otherwise 

specified. 

ii. Real Time Session 

LCH SA’s ‘‘Real Time Session’’ is, in 

essence, its operating hours. For 

example, Article 3.1.4.1 of the Rule 

Book provides that an Intraday 

Transaction may be submitted to LCH 

SA during the Real Time Session on any 

Clearing Day, and Article 3.1.4.3 states 

that if an Intraday Transaction is 

received for clearing by LCH SA outside 

of the Real Time Session, it will be 

deemed to have been submitted at the 

Start of the Real Time Session on the 

following Clearing Day. Currently, the 

Rule Book defines ‘‘Real Time Session’’ 

to mean the period commencing at the 

Start of Real Time and ending at the End 

of Real Time in respect of each Clearing 

Day.28 Moreover, the Rule Book defines 

‘‘Start of Real Time’’ as the time as 

specific in a Clearing Notice. The 

Proposed Rule Change would not alter 

these definitions, but it would adopt a 

new clearing notice. This new clearing 

notice would provide that, unless 

notified otherwise, ‘‘Start of Real Time 

(SoRT)’’ would mean on each clearing 

day, the earlier of: (i) the time when all 

relevant Clearing Members have 

satisfied the morning call; and (ii) 09.05 

(Paris time). Moreover, the new clearing 

notice would provide that End of Real 

Time means 16.30 (New York time) 

instead of 19.30 CET. 

Relatedly, the Proposed Rule Change 

would amend Article 2.3.3.5 of the Rule 

Book. Article 2.3.3.5 requires each 

Clearing Member to ensure that 

appropriate personnel are available for 

communications with LCH SA during 


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29 ‘‘Opening Hours’’ is currently defined as 8:00 

to 19:30 each business day. 

30The Operational Target represents the amount 

of liquidity to be held to satisfy the liquidity needs 

related to the operational management of the CCP 

in a stressed environment that does not lead to a 

member’s default. 

Opening Hours on each Business Day. 

The Proposed Rule Change would 

instead require each Clearing Member to 

have appropriate personnel available for 

communications with LCH SA during 

the Real Time Session, instead of only 

at opening hours. 

The Proposed Rule Change would 

make an equivalent change to Section 

5(c) of the Procedures. Currently, 

Section 5(c) specifies LCH SA’s opening 

hours, provides that the LCH SA 

operations team is available during 

those hours, and further provides the 

hours of availability for LCH SA’s 

technical helpdesk. The Proposed Rule 

Change would replace these different 

times with one, under which LCH SA 

would be open during the Real Time 

Session and its operations team would 

be available during the Real Time 

Session. As a result of these changes, 

the Proposed Rule Change would 

remove defined term ‘‘Opening Hours’’ 

from the definitions section of the Rule 

Book since it would no longer be used.29

iii. Other Changes 

Finally, the Proposed Rule Change 

would make other minor amendments 

for consistency or clarity to the Rule 

Book, the Procedures, and the 

Regulations. 

D. Amendments to Liquidity Risk 

Modelling Framework 

The Proposed Rule Change would 

amend LCH SA’s LRMF. As discussed 

below, these amendments would for the 

most part clarify that FCM/BD clients’ 

funds are segregated. As such, they are 

not available resources to LCH SA in a 

default management context unless the 

liquidity requirement is driven by the 

FCM/BD Clearing Member of such FCM/ 

BD Clients. LCH SA is making these 

changes to comply with applicable 

regulations. The Proposed Rule Change 

also would make a few amendments to 

the LRMF to add clarity, as discussed 

below. 

The Proposed Rule Change would 

first make a clarifying update to Section 

1.1.1. Section 1.1.1 explains that the 

CDS business line gathers clearing 

activity for a wide selection of Euro 

index and single names. The Proposed 

Rule Change would update this 

description to include clearing activities 

related to the clearing of US, Australia, 

and Asia sovereign index and single 

names. This change would reflect the 

current composition of LCH SA’s CDS 

business line. 

The Proposed Rule Change would 

amend Section 1.6.1, which addresses 

Liquidity Sources. The Proposed Rule 

Change would clarify that LCH SA has 

the right to consider available for 

liquidity purposes cash posted by 

Clearing Members to meet margin 

requirements and their excess cash, 

except cash received from FCM/BD 

clearing member(s) on behalf of their 

FCM/BD clients or excess cash for FCM/ 

BD Clients. That cash would be 

excluded unless the liquidity 

requirement is driven by the relevant 

FCM/BD clearing member. 

The proposed amendment to 1.6.1 

also would clarify that LCH SA has the 

right to consider available for liquidity 

purposes all the resources collected if 

deposited under the full title transfer 

regime. Collateral deposited by FCM/BD 

Clearing Members on behalf of their 

FCM/BD Clients would not be deposited 

under the full title transfer regime. 

Instead, such Collateral would be 

subject to a security interest. 

Accordingly, the Proposed Rule Change 

would update a footnote, which 

currently provides a list of Collateral 

which is not transferred by way of full 

title transfer, to add a reference to 

Collateral received from FCM/BD 

Clients. 

The Proposed Rule Change next 

would update Section 1.6.1.1, which 

addresses Collateral transfer to the 3G 

pool, to reflect the fact that non-cash 

collateral deposited via a single pledged 

account is a way to post Collateral for 

activities not limited to CDS related 

activities only and to provide that USD 

securities received from FCM/BD 

Clients would not be deposited via full 

title transfer accounts. 

The Proposed Rule Change would 

amend Section 1.6.1.2, which addresses 

assessment of assets’ liquidity, to 

prohibit LCH SA from re-hypothecating 

non-cash collateral collected from FCM/ 

BD clients. LCH SA would not be able 

to use such cash for liquidity unless the 

FCM/BD Clearing Member of such FCM/ 

BD clients is in default. The Proposed 

Rule Change would apply the same 

treatment to securities resulting from 

FCM/BD Clients’ cash which LCH SA 

invested. 

Section 1.6.1.3 contains a table that 

summarizes LCH SA’s liquidity sources. 

The Proposed Rule Change would add 

to this table explanations to exclude the 

following from consideration as 

liquidity sources: (i) Collateral received 

from FCM/BD Clearing Members on 

behalf of FCM/BD Clients; (ii) excess 

cash for FCM/BD Clients that can be 

generated on an intraday basis; and (iii) 

securities resulting from investment of 

FCM/BD Clients’ cash. As mentioned 

above, these sources would only be 

available if the liquidity requirement is 

driven by the FCM/BD Clearing Member 

of such FCM/BD Clients. 

The Proposed Rule Change next 

would amend the description of the 

liquidity need ‘‘repayment of excess 

cash by members’’ in Section 4.1.2, 

which covers Model inputs and Variable 

selection. The Proposed Rule Change 

would provide that, when calculating 

the liquid resources available to be 

compared against the Operational 

Target,30 the cash received from the 

FCM/BD Clearing Members on behalf of 

their FCM/BD Clients is excluded. In 

two associated footnotes, the Proposed 

Rule Change would specify that 

Securities in DKK, NOK, SEC, AUD, 

CAD, CHF, JPY are excluded from 

liquidity assets as well as collateral 

belonging to FCM/BD clients. 

Section 4.1.5 describes certain 

assumptions that LCH SA makes when 

the Operational Target as well as certain 

sources of liquidity that LCH SA uses 

when calculating the target. One the 

sources of liquidity is LCH SA’s cash 

deposit at Banque de France overnight. 

The Proposed Rule Change would 

specify that this cash deposit does not 

include cash from FCM/BD Clients. 

Moreover in Section 4.1.5, paragraph c., 

the Proposed Rule Change would 

correct a typographical error in the 

penultimate sentence. 

The Proposed Rule Change would 

amend Sections 4.2.2, which covers 

model inputs and variable selection, 

and 4.2.4, which covers mathematical 

formula, derivation and algorithm, and 

numerical approximation, to explain 

that when LCH SA calculates its 

liquidity coverage ratio, the resources of 

FCM/BD clients are segregated and 

unavailable. LCH SA would only 

consider these resources to be available 

where the relevant FCM/BD Clearing 

Member is assumed to be in default. 

Even in that case, the possibility to use 

the resource held on behalf of FCM/BD 

clients for liquidity purposes would be 

capped to the obligations of the FCM/ 

BD Client. 

The Proposed Rule Change would 

next amend Section 4.2.5.3, which 

covers stress scenario selection. Here 

the Proposed Rule Change would 

correct a minor typographical error. It 

would refer to CDSClear rather than 

CDS when describing the market stress 

scenario considered in the LCR. The 

amendment is made for consistency 

purposes and is not linked to the FCM/ 

BD related initiative. 


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31 15 U.S.C. 78s(b)(2)(C). 

32 15 U.S.C. 78q–1(b)(3)(F). 

33 17 CFR 240.17Ad–22(e)(21) 

34 17 CFR 240.17Ad–22(e)(1). 

35 15 U.S.C. 78q–1(b)(3)(F). 

36 15 U.S.C. 78q–1(b)(3)(F). 

37 15 U.S.C. 78q–1(b)(3)(F). 

38 17 CFR 240.17Ad–22(e)(21). 

39See Standards for Covered Clearing Agencies, 

Securities Exchange Act Release No. 78961 (Sept. 

28, 2016), 81 FR 70786, 70841 (Oct. 13, 2016). 

40 17 CFR 240.17Ad–22(e)(21). 

In Section 4.3.2, which covers model 

inputs and variable selection, and 4.3.4, 

which covers mathematical formula, 

derivation and algorithm, and numerical 

approximation, the Proposed Rule 

Change would specify that, in the 

calculation of the LCR for the 

interoperable CCP, the resources held 

on behalf of FCM/BD clients must be 

considered segregated and therefore 

unavailable for liquidity purposes. 

Finally, in Appendix 6.3 (Reminder of 

LCH SA’s Sources of Liquidity and 

Related Risk Drivers), the Proposed Rule 

Change would add two footnotes to 

specify that cash held on behalf of FCM/ 

BD clients (allocated and in excess) is 

excluded unless the liquidity 

requirement is driven by the relevant 

FCM/BD Clearing Member. With respect 

to the source of liquidity coming from 

Non-Euro non-cash collateral posted in 

full title transfer, the Proposed Rule 

Change would specify in a footnote that 

securities in DKK, NOK, SEK, CAD, 

AUD, CHF and JPY are excluded from 

the liquidity resources. This amendment 

is not linked to the FCM/BD related 

initiative but made for consistency 

purposes. With respect to the liquidity 

source coming from the collateral of 

investment activity, the Proposed Rule 

Change would add a footnote to specify 

that securities coming from FCM/BD 

clients investment shall be excluded 

unless the relevant FCM/BD Clearing 

Member is in default. 

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.31 For the reasons given 

below, the Commission finds that the 

Proposed Rule Change is consistent 

with Section 17A(b)(3)(F) of the Act,32

Rule 17Ad–22(e)(21),33 and Rule 17Ad– 

22(e)(1) 34 thereunder. 

A. Consistency With Section 

17A(b)(3)(F) of the Act 

Section 17A(b)(3)(F) of the Act 

requires, among other things, that the 

rules of LCH SA be designed to promote 

the prompt and accurate clearance and 

settlement of securities transactions 

and, to the extent applicable, derivative 

agreements, contracts, and transactions, 

as well as to assure the safeguarding of 

securities and funds which are in the 

custody or control of LCH SA or for 

which it is responsible.35 As discussed 

in more detail below, the Commission 

finds that the Proposed Rule Change is 

consistent with Section 17A(b)(3)(F) of 

the Act.36

The proposed changes to the 

Procedures would require that LCH SA 

and Clearing Members establish and use 

certain accounts to hold and transfer 

cash and other collateral for satisfying 

margin requirements in connection with 

client positions in SBS and establish 

procedures for the return of excess 

collateral related to client positions in 

SBS. In requiring the establishment and 

use of certain accounts to hold and 

transfer cash and other collateral for 

satisfying margin requirements, and in 

establishing procedures for the return of 

excess collateral related to client 

positions in SBS, these proposed 

changes would help to assure the 

safeguarding of securities and funds in 

LCH SA’s custody and control. 

As part of the Portfolio Margining 

Program, The Proposed Rule Change 

also would amend the definition of the 

LCH Cleared Swaps Client Segregated 

Depository Account to include FCM/BD 

Portfolio Margining Transactions. 

Similarly, under the Proposed Rule 

Change LCH would, upon request, 

maintain a segregated depository 

account in BNYM to register BNYM 

eligible collateral. These requirements 

should help safeguard client funds by 

ensuring the funds are held in a 

segregated account. 

The Proposed Rule Change also 

would amend the Rule Book to require 

Clearing Members to have appropriate 

personnel available for communications 

with LCH SA. It also would amend time 

references in the CDS clearing 

documentation to clarify they mean 

CET, unless otherwise stipulated. 

Having personnel available should help 

to ensure that LCH SA can promptly 

communicate with Clearing Members as 

needed to clear and settle transactions. 

Similarly, clarifying references to time 

should help ensure prompt and accurate 

settlement. 

Therefore, for the reasons discussed 

above, the Commission finds that the 

Proposed Rule Change is consistent 

with the Section 17A(b)(3)(F) of the 

Act.37

B. Consistency With Rule 17Ad– 

22(e)(21) Under the Act 

Rule 17Ad–22(e)(21) requires covered 

clearing agencies to establish, 

implement, maintain, and enforce 

written policies and procedures 

reasonably designed to be efficient and 

effective in meeting the requirements of 

its participants and the markets it 

serves, and have the covered clearing 

agency’s management regularly review 

the efficiency and effectiveness of its 

clearing and settlement arrangements.38

In adopting Rule 17Ad–22(e)(21), the 

Commission provided guidance as to 

what a covered clearing agency 

generally should consider in 

establishing and maintaining policies 

and procedures that address efficiency 

and effectiveness.39

The Proposed Rule Change, in 

revising the Program, would give FCM/ 

BD Clearing Members the ability, on 

behalf of their FCM/BD clients, to 

portfolio margin FCM/BD Cleared 

Transactions that are SBS with FCM/BD 

Cleared Transactions that are Cleared 

Swaps. Under the Program, Clearing 

Members and their Clients are able to 

maintain reduced levels of margin that 

are commensurate with the risks of the 

portfolio based on correlations in a 

Clearing Member’s cleared CDS 

positions consisting of both swaps and 

SBS. This allows Clearing Members to 

have increased efficiency by using 

margin from swaps and SBS by reducing 

costs for Clearing Members and their 

Clients. 

Additionally, as discussed above, 

LCH SA also proposes to allow Clearing 

Members to set or update its house 

excess Collateral threshold or Client 

Collateral Buffer Threshold on the 

business day such request will be made, 

instead of the next business day. This 

allows Clearing Members to update 

Collateral faster, which should allow for 

more efficient exchange of Collateral. 

The Proposed Rule Change would 

require each Clearing Member to have 

appropriate personnel available for 

communications with LCH SA during 

the Real Time Session, instead of only 

at opening hours. This change would 

allow for faster communication between 

Clearing Members and LCH SA by 

ensuring there is no delay because of 

lack of personnel. 

The Commission believes, therefore, 

that the Proposed Rule Change is 

consistent with the requirements of Rule 

17Ad–22(e)(21) under the Act.40

C. Consistency With Rule 17Ad–22(e)(1) 

Rule 17Ad–22(e)(1) requires that LCH 

SA establish, implement, maintain, and 


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41 17 CFR 240.17Ad–22(e)(1). 

42 17 CFR 240.17Ad–22(e)(1). 

43 15 U.S.C. 78q–1(b)(3)(F). 

44 17 CFR 240.17Ad–22(e)(21) 

45 17 CFR 240.17Ad–22(e)(1). 

46 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). 

47 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

enforce written policies and procedures 

reasonably designed to provide for a 

well-founded, clear, transparent, and 

enforceable legal basis for each aspect of 

its activities in all relevant 

jurisdictions.41

The Commission believes that the 

other changes related to the Default 

Management Process, as discussed 

above, would help to ensure that the 

legal basis for LCH SA’s activities is 

well-founded and clear. LCH SA 

proposes to amend Article 4.2.2 

regarding the stages of defaults where a 

Clearing Member is a CCM. Specifically, 

LCH SA proposes to add additional 

conditions regarding the transfer of 

Collateral. This helps to ensure clarity 

in the CDS Default Management 

Process. 

LCH SA is amending its Procedures 

and Rule book to create a standard to 

create an enforceable legal basis for its 

portfolio margining is the practice by 

which transactions in SBS are cleared 

and held on a commingled basis with 

transactions in swaps. This standard is 

based on the Portfolio Margining Order 

and the CFTC Portfolio Margining 

Order. This Program creates a clear and 

well-founded legal basis based on the 

guidance from both the CFTC and the 

Commission. 

As discussed above, LCH SA proposes 

to make clarifying amendments to its 

Liquidity Risk Modeling Framework. 

For example, as discussed above, the 

Proposed Rule Change would amend the 

description of the liquidity need 

repayment of excess cash by members. 

The Proposed Rule Change would 

provide that, when calculating the 

liquid resources available, the cash 

received from the FCM/BD Clearing 

Members on behalf of their FCM/BD 

Clients is excluded. This helps ensure 

LCH SA has clear standards when 

calculating liquid resources available. 

Thus, the Commission finds that these 

aspects of the Proposed Rule Change are 

consistent with Rule 17Ad–22(e)(1).42

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, 17A(b)(3)(F) of the Act,43

Rule 17Ad–22(e)(21),44 and Rule 17Ad– 

22(e)(1) 45 thereunder. 

It is therefore ordered pursuant to 

Section 19(b)(2) of the Act that the 

Proposed Rule Change (SR–LCH SA– 

2023–005) be, and hereby is, 

approved.46

For the Commission by the Division of 

Trading and Markets, pursuant to delegated 

authority.47

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–19354 Filed 9–7–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–98277; File No. SR–CBOE– 

2023–043] 

Self-Regulatory Organizations; Cboe 

Exchange, Inc.; Notice of Filing and 

Immediate Effectiveness of a Proposed 

Rule Change To Amend Rule 4.3 

(Criteria for Underlying Securities) To 

Accelerate the Listing of Options on 

Certain IPOs 

September 1, 2023. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on August 

24, 2023, Cboe Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘Cboe Options’’) filed 

with the Securities and Exchange 

Commission (the ‘‘Commission’’) the 

proposed rule change as described in 

Items I and II below, which Items have 

been prepared by the Exchange. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

Cboe Exchange, Inc. (the ‘‘Exchange’’ 

or ‘‘Cboe Options’’) proposes to amend 

Rule 4.3. The text of the proposed rule 

change is provided below. 

(additions are italicized; deletions are 

[bracketed]) 

* * * * * 

Rules of Cboe Exchange, Inc. 

* * * * * 

Rule 4.3. Criteria for Underlying 

Securities 

(a)–(b) No change. 

Interpretations and Policies 

.01 The [Board of Directors]Exchange 

has established guidelines to be 

considered [by the Exchange in]when 

evaluating potential underlying 

securities for Exchange option 

transactions. Absent exceptional 

circumstances with respect to 

subparagraphs (a)(1), (a)(2), (b)(1), or 

(b)(2) listed below, at the time the 

Exchange selects an underlying security 

for Exchange option transactions, the 

following guidelines with respect to the 

issuer shall be met. 

(a) No change. 

(b) Guidelines applicable to the 

market for the security are: 

(1) No change. 

(2) (A) If the underlying security is a 

‘‘covered security’’ as defined under 

Section 18(b)(1)(A) of the Securities Act 

of 1933[,]: (i) the market price per share 

of the underlying security has been at 

least $3.00 for the previous three 

consecutive business days preceding the 

date on which the Exchange submits a 

certificate to the OCC for listing and 

trading. For purposes of this 

Interpretation .01(b)(2)(A), the market 

price of such underlying security is 

measured by the closing price reported 

in the primary market in which the 

underlying security is traded; however, 

(ii) the requirements set forth in clause 

(i) will be waived during the three days 

following an underlying security’s initial 

public offering day if the underlying 

security has a market capitalization of 

at least $3 billion based on upon the 

offering price of its initial public 

offering, in which case options on the 

underlying security may be listed and 

traded starting on or after the second 

business day following the initial public 

offering day. 

* * * * * 

The text of the proposed rule change 

is also available on the Exchange’s 

website (http://www.cboe.com/ 

AboutCBOE/CBOELegal

RegulatoryHome.aspx), at the 

Exchange’s Office of the Secretary, and 

at the Commission’s Public Reference 

Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange 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. The 

Exchange has prepared summaries, set 

forth in sections A, B, and C below, of 

the most significant aspects of such 

statements. 


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