1952 Federal Register / Vol. 89, No. 8 / Thursday, January 11, 2024 / Notices 

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

2 17 CFR 240.19b–4. 

3LCH SA, a subsidiary of LCH Group and an 

indirect subsidiary of the London Stock Exchange 

Group plc (‘‘LSEG’’), manages its liquidity risk 

pursuant to, among other policies and procedures, 

the Group Liquidity Risk Policy and the Group 

Liquidity Plan applicable to each entity within LCH 

Group. In addition to its CDSClear service, LCH SA 

provides clearing services in connection with cash 

equities and derivatives listed for trading on 

Euronext (EquityClear), commodity derivatives 

listed for trading on Euronext (CommodityClear), 

and tri-party Repo transactions (RepoClear). LCH 

SA also maintains an interoperability link with 

Euronext Clearing, formerly Cassa di 

Compensazione e Garanzia, in Milan, Italy. 

4LCH SA uses a Cover 2 approach for conducting 

stress tests and assessing its liquidity resources on 

a daily basis. This approach assumes that the two 

Clearing Member groups with the largest liquidity 

exposure will default on the same day. Cover 2 is 

computed by taking into account the liquidity risks 

related to clearing members within the same group 

across all services of the CCP that are then 

aggregated. 

5See, Framework, § 4.2.5. 

6See, e.g., Framework, §§ 4.2.1, 5.1, 5.3. 

7See, Framework, § 4.2.5.2.4. 

8No revisions are being proposed to Section 2, 

Limitations and Compensating Controls, or Section 

3, Justification of Modeling Approach. The 

Framework also has a number of appendices, set 

out in Section 6, that supplement the matters 

discussed elsewhere in the Framework. 9Per SEC Rule 17Ad–22(e)(7)(i), LCH SA is 

required to maintain sufficient liquid resources at 

the minimum in all relevant currencies to effect 

same-day and, where appropriate, intraday and 

multiday settlement of payment obligations with a 

high degree of confidence under a wide range of 

foreseeable stress scenarios that includes, but is not 

limited to, the default of the participant family that 

would generate the largest aggregate payment 

obligation for the covered clearing agency in 

extreme but plausible market conditions. 

10Such liquidation includes the possible 

liquidation of securities underlying reverse 

are available at www.prc.gov, Docket 

Nos. MC2024–160, CP2024–166. 

Sean Robinson, 

Attorney, Corporate and Postal Business Law. 

[FR Doc. 2024–00380 Filed 1–10–24; 8:45 am] 

BILLING CODE 7710–12–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–99277; File No. SR–LCH 

SA–2023–007] 

Self-Regulatory Organizations; LCH 

SA; Notice of Filing of Proposed Rule 

Change Relating to Liquidity Risk 

Modelling Framework 

January 5, 2024. 

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

Securities Exchange Act of 1934 

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

notice is hereby given that on December 

22, 2023, Banque Centrale de 

Compensation, which conducts 

business under the name LCH SA (‘‘LCH 

SA’’), filed with the Securities and 

Exchange Commission (‘‘Commission’’) 

the proposed rule change described in 

Items I, II and III below, which Items 

have been primarily prepared by LCH 

SA. The Commission is publishing this 

notice to solicit comments on the 

Proposed Rule Change from interested 

persons. 

I. Clearing Agency’s Statement of the 

Terms of Substance of the Proposed 

Rule Change 

LCH SA is proposing to amend its 

Liquidity Risk Modelling Framework 

(the ‘‘Framework’’), which describes the 

Liquidity Stress Testing framework by 

which the Collateral and Liquidity Risk 

Management department (‘‘CaLRM’’) of 

LCH SA assures that LCH SA has 

enough cash available to meet any 

financial obligations, both expected and 

unexpected, that may arise over the 

liquidation period for each of the 

clearing services that LCH SA offers (the 

‘‘Proposed Rule Change’’).3

II. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

In its filing with the Commission, 

LCH SA included statements concerning 

the purpose of and basis for the 

Proposed Rule Change and discussed 

any comments it received on the 

Proposed Rule Change. The text of these 

statements may be examined at the 

places specified in Item IV below. LCH 

SA has prepared summaries, set forth in 

sections A, B, and C below, of the most 

significant aspects of such statements. 

A. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

1. Purpose 

The Proposed Rule Change is being 

adopted primarily to enhance the 

manner in which the Liquidity Coverage 

Ratio (‘‘LCR’’) is calculated, thereby 

increasing the robustness of LCH SA’s 

liquidity profile.4 The changes 

implement recommendations made by 

LCH SA’s Model Validation Team 

following validation exercises in 2020 

and 2021. 

In particular, the Proposed Rule 

Change will: (a) revise the manner in 

which the settlement obligation 

liquidity requirements are calculated by 

aligning it to the actual process used by 

the Operations Team during a default 

management event and ensuring that no 

netting is allowed between Members of 

the same Group; (b) revise the manner 

in which securities pledged to the 

Banque de France (‘‘BdF’’) are 

calculated by providing that such 

securities be valued at the stressed 

mark-to-market price rather than the 

contract price; 5 (c) extend from five (5) 

days to seven (7) days the length of time 

for which LCH SA must maintain 

liquidity resources sufficient to meet its 

liquidity requirements; 6 (d) include the 

liquidity needs generated by the 

expiration of physically settled stock 

futures in the liquidity monitoring; and 

(e) require LCH SA, in calculating its 

required liquidity resources, to take into 

account that Clearing Members may 

switch from depositing non-cash 

collateral in a Full Title Transfer 

Account, which may be pledged at the 

BdF to obtain a liquidity line of credit, 

to depositing non-cash collateral instead 

in a Pledge Account, which permits no 

re-hypothecation rights.7

The proposed revisions to the 

Framework are set out in four of the 

Framework’s six sections: Section 1, 

Model Scope, Purpose and Use; Section 

4, Model Specifications; Section 5, 

Model Performance Testing and 

Ongoing Monitoring and Section 6, 

Appendix.8

Section 1 of the Framework will be 

amended as follows: 

Section 1.1, Model Objective, Business 

Scope and Intended Use, will be revised 

to specify that the review of the 

Framework will be performed at least on 

an annual basis rather than quarterly to 

align the frequency of the review with 

the frequency defined for the regular 

update of the Liquidity Risk Policy. 

Section 1.1.1, Reminder of SA’s 

activities, will be revised to specify that 

the Default Funds are calibrated on the 

assumption of default of the two most 

exposed Member Groups (Cover 2). In 

particular, LCH SA’s Framework 

ensures that the liquid resources are 

sufficient to cover the simultaneous 

default of the two most exposed 

Member Groups in term of liquidity that 

are identified by taking into 

consideration all of the possible 

liquidity needs, including the 

settlement obligation. This is approach 

incorporates the Cover 1 Clearing 

Member Group plus the next most 

exposed Clearing Member Group.9

Section 1.1.2, Investment activities, 

will be revised to clarify the 

responsibilities of the Collateral and 

Liquidity Management (‘‘CaLM’’) Front 

Office team. Specifically, the sentence: 

‘‘Three main tasks have been assigned to 

the team: liquidity management, noncash collateral settlement in case of a 

clearing member’s default and 

investment management’’ has been 

revised to read: ‘‘Three main tasks have 

been assigned to the team: liquidity 

management, non-cash collateral 

liquidation 10 in case of a clearing 


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Federal Register / Vol. 89, No. 8 / Thursday, January 11, 2024 / Notices 1953 

repurchase activities of a defaulting clearing 

member. 

11The CaLM Risk Procedures: Investment Risk 

Monitoring, and Default Management Guidelines, 

which currently are included among these policies 

and procedures, have been removed. 

12See, Framework, § 5.3. 

13 17 CFR 240.17Ad–22(e)(7)(vi)(B). 

14 17 CFR 240.17Ad–22(a)(14)(i). 

15 17 CFR 240.17Ad–22(a)(14)(ii). 

16 17 CFR 240.17Ad–22(a)(14). 

17 Id. 

18As a credit institution, LCH SA has access to 

the ECB Open Market Operations in USD. LCH SA 

considers this resource as a last resort. 

19 17 CFR 240.17Ad–22(a)(14). 

member’s default and investment 

management’’. The purpose of this 

change is to provide a more accurate 

description on the actual 

responsibilities of the CaLM Front 

Office team which is in charge of 

performing all the relevant activities 

necessary to liquidate a member’s noncash collateral in case of defaults. 

Section 1.3, Model dependency and 

interconnectivity, will be revised to 

describe more fully the purpose of the 

various policies and procedures that 

LCH SA employs to manage its liquidity 

risk in a manner that is consistent with 

defined risk appetites, as well as with 

regulatory and internal requirements. 

These policies and procedures include: 

• LCH SA Liquidity Plan, which sets 

out the principles and procedures for 

liquidity management within LCH SA. 

Its main objectives are to: 

Æ Ensure that LCH SA maintains 

sufficient liquidity at all times in 

accordance with policies set by the 

appropriate governance authority and 

monitored and reported by Risk 

Management; 

Æ Ensure that liquidity management 

and resources are aligned with LCH 

SA’s operational requirements to meet 

payment obligations as they fall due 

under business as usual and stressed 

liquidity conditions; and 

Æ Ensure effective liquidity risk 

identification and escalation within 

CaLM service and other relevant LCH 

SA departments. 

• Group Liquidity Risk Policy, which 

ensures that each central counterparty 

(‘‘CCP’’) of LCH Group has enough 

liquid resources on hand to meet all the 

expected and unexpected financial 

obligations that arise during the course 

of the day. The policy lays out how a 

CCP will measure whether there are 

enough available liquid resources. 

• Group Financial Resource 

Adequacy Policy, which describes the 

standards by which financial resources 

should be assessed against Clearing 

Member exposures, including variation 

margins, initial margins, margin add-ons 

for liquidity risk, concentration risk, 

wrong-way risk, where appropriate, as 

well as the sizing and re-sizing of the 

default funds across the LCH Group 

CCPs. 

• Group Collateral Risk Policy, which 

sets out the standards for managing 

collateral risk across the LCH Group 

CCPs and ensures that CCPs must have 

a robust mechanism in place to process 

and control the collateral posted by 

Members. 

• Group Investment Risk Policy, 

which sets out the standards for the 

management of investment risk across 

the LCH Group CCPs. 

• LCH SA Collateral Control 

Framework, which describes the actions 

undertaken by the CaLRM team to 

implement the collateral limits laid out 

in the Group Collateral Risk Policy and 

to ensure that the prices integrated on 

a daily basis by the Margin Team are 

accurate and fairly priced. 

• Group Risk Policy: Default 

Management, which describes the 

minimum standards that each CCP 

within the LCH Group must meet in 

dealing with the default of a Member.11

• Section 1.4, Model Governance, will 

be revised by adding a footnote 

specifying that core liquidity reverse 

stress tests 12 are performed monthly in 

line with that stated in the Liquidity 

Risk Policy. In particular LCH SA 

performs two set of reverse stress test: 

Æ On a monthly basis, in line with the 

methodology applied to perform any 

reverse stress tests in LCH SA, risk 

factors (defined in section 5.3.1) are 

independently stressed (one single 

factor at time) to assess extreme market 

conditions necessary to observe a breach 

of the LCR limit. 

Æ In addition, combined reverse 

stress test scenarios (defined in section 

5.3.2) are also performed on at least a 

quarterly basis. These combined 

scenarios are considered as ‘‘non-core 

reverse stress tests’’ with combined 

stress shocks applied on risks factors to 

determine the joint market conditions 

necessary to breach the LCR limit and 

assess their plausibility. This change to 

the Framework is being proposed to 

align it with the updated Liquidity Risk 

Policy text approved during the 2022 

review and in compliance with the SEC 

rule 17Ad–22(e)(7)(vi)(B).13

Æ Finally, Section 1.6.1, Liquidity 

Sources, will be revised to expand the 

tools available to CaLM to meet LCH 

SA’s non-Euro liquidity requirements in 

the event of a default. This proposed 

change aims to align the Framework 

with the updated Liquidity Plan text 

approved during the 2022 review. 

Specifically, these tools include: 

• Non-Euro cash deposited as 

collateral in accordance with SEC Rule 

17Ad–22(a)(14)(i) 14 as being cash held 

at creditworthy commercial banks; 

• Sale of non-Euro securities of the 

defaulting member in accordance with 

SEC Rule 17Ad–22(a)(14)(ii) 15: 

Æ These highly liquid and available 

securities would be converted into cash 

via an outright sale in the open market; 

or 

Æ in the intermediary period between 

the default of the member and the 

auction settlement, these securities 

might be converted into cash via the 

repo arrangement in place at CaLM 

Front Office. 

• Repo transactions, including: (a) 

bilateral repo transactions (non-Euro 

cash taker and non-Euro collateral 

giver); (b) cross-currency bilateral repo 

(non-Euro cash taker and Euro collateral 

giver); (c) cross-currency triparty repo 

(non-Euro cash taker and Euro collateral 

giver). LCH SA considers these 

transactions to be classified as 

prearranged funding arrangements 

determined to be highly reliable even in 

extreme but plausible market conditions 

due to (a) their contractual nature; and 

(b) the highly liquid and overall 

resilience of the repo markets for the 

major currencies cleared by LCH SA. 

• Use of the multicurrency overdraft 

facility. In accordance with SEC Rule 

17Ad–22(a)(14),16 LCH SA considers 

this facility to be classified as a 

prearranged funding arrangement 

determined to be highly reliable even in 

extreme but plausible market conditions 

due to (a) its contractual nature; and (b) 

the high credit quality, based on the 

conservative internal credit score 

required of the bank providing the 

facility. 

• Use of the FX spot market 

transactions. In accordance with SEC 

Rule 17Ad–22(a)(14),17 LCH SA 

considers this facility to be classified as 

a prearranged funding arrangement 

determined to be highly reliable even in 

extreme but plausible market conditions 

as (a) numerous counterparties are 

already onboarded on the FX platform; 

and (b) the highly liquid and overall 

resilience of the FX markets observed 

for the major currencies cleared by LCH 

SA. 

• ECB weekly tender in U.S. Dollars 

(‘‘USD’’).18 In accordance with SEC Rule 

17Ad–22(a)(14) 19 LCH SA considers 

this facility to be a prearranged funding 

arrangement determined to be highly 

reliable even in extreme but plausible 

market conditions given LCA SA’s 

banking license and the central bank 


ddrumheller on DSK120RN23PROD with NOTICES1
1954 Federal Register / Vol. 89, No. 8 / Thursday, January 11, 2024 / Notices 

20See Article 4.2.3.2., https://www.lch.com/ 

system/files/media_root/Supplementary%20

Materials%20-%20LCH%20SA%20- 

%20CDSClear%20SA%20Rule%20Book_1.pdf. 

21 17 CFR 240.17Ad–22(a)(14). 

22 Id. 

23Currently, non-cash collateral may be pledged 

without limits only with regard to the CDSClear 

service. Moreover, there are limits on the amount 

of pledge collateral that may be deposited for 

RepoClear, ÖGC (Tri-Party Repo) and EquityClear. 

The majority of the collateral that LCH SA currently 

collects is by Full Title Transfer. 

24A detailed presentation of the model 

enhancement is reflected in Section 4.2.5.1.1.2 of 

the Framework. 

status of the institution providing such 

resource. 

• Replace LCH SA’s liabilities in nonEuro by Euro, as permitted by LCH SA’s 

Rule Book (Article 4.2.3.2 of CDSClear 

Rulebook).20 In accordance with SEC 

Rule 17Ad–22(a)(14) 21 Euros used to 

cover liabilities would be cash held at 

central bank. 

Furthermore, the committed liquidity 

line previously noted is being removed 

as LCH SA has replaced the committed 

liquidity line with a multicurrency 

overdraft facility at a major international 

bank. 

In summary, LCH SA classifies the 

different liquidity tools pursuant to SEC 

Rule 17Ad–22(a)(14),22 as follows: 

• Cash—Euros cash held at central 

bank/non euros cash held at 

creditworthy commercial banks; 

replacement of LCH SA’s liabilities in 

non euros by euros 

• Uncommitted prearranged—readily 

available assets convertible to cash 

through prearranged funding 

arrangements, that are determined to be 

highly reliable even in extreme but 

plausible market conditions by the BoD 

following a review to be conducted not 

less than annually: 

a. Sale of non-Euro securities of the 

defaulting members; 

b. Repo transactions (bilateral repo, 

cross currency bilateral repo, and cross 

currency triparty repo); 

c. Multicurrency overdraft facility; 

d. FX spot market transactions; and 

e. ECB weekly tender in U.S. dollars 

Additionally, a footnote (8) has been 

removed as the relevant report has been 

taken out from the appendix in the 

context of the reorganisation of the 

appendix 5 as described below in the 

relevant section in the present 19b4. 

Section 1.6.1.1, Collateral transfer, 

will be revised to recognize that a 

Clearing Member may deposit non-cash 

collateral either (a) by Full Title 

Transfer Accounts that LCH SA 

maintains at various central securities 

depositories or (b) by a Single Pledged 

Account, without the right of rehypothecation, that LCH SA maintains 

at Euroclear Bank.23 This section will be 

further revised to clarify that non-cash 

collateral deposited in Full Title 

Transfer Accounts may be pledged at 

the BdF to obtain a liquidity line of 

credit that can be drawn on intraday or 

overnight, if needed. Additionnaly, 

precisions have been added regarding: 

—the existing limits applied on 

Repoclear SA/ÖGC Plus and 

EquityClear SA for pledge 

—the fact that FFTA is used in majority 

by Clearing Members 

Finally, to enhance the wording, a 

precision has been added to precise that 

only resources received in FFTA can be 

pledged to 3G pool. 

The change aims to improve the 

clarity of the document as there is no 

change applied on the actual offer of 

collateral account. 

Section 1.6.1.2, Assessment of assets’ 

liquidity, will be revised to provide that 

Tier 1 assets, i.e., securities that are 

deemed to be of sufficient quality and 

demand to generate liquidity in the 

event of a default or a major market 

stress at little or no loss, will include, 

in addition to all European Central Bank 

(‘‘ECB’’) eligible collateral, UK Gilts and 

U.S. Treasury Bills, along with Dutch 

and Belgian central bank guarantees (but 

only for the defaulting Clearing 

Member). In addition, recognized Tier 3 

assets, i.e., assets that are deemed to 

have little or no liquidity value in the 

event of a default or major market stress, 

or are deemed to be too illiquid to be 

converted in the timeframe that LCH SA 

would need the liquidity, will be 

revised to include non-cash collateral 

denominated Danish Krone, Norwegian 

Krone, Swedish Krona, Japanese Yen, 

Swiss Francs, Canadian Dollars and 

Australian Dollars. 

Section 1.6.1.3, Synthesis, will be 

revised to clarify that LCH SA does not 

retain the right of collateral rehypothecation for collateral deposited 

under the pledge regime unless the 

Clearing Member is in default. The 

reference specific to CDS has been 

removed as now the pledge is offered for 

all LCH SA services. It will confirm that 

CaLM demonstrated in 2021 and 2022 

the ability to raise Euro liquidity from 

non-Euro non cash collateral in USD 

and GBP. Moreover, it will clarify that 

when considering non-Euro non cash 

collateral as a liquidity source, a 

conservative buffer of ten percent (10%) 

is applied to absorb market stress that 

may occur beyond the volatility already 

captured by the all-in haircut. In 

addition, it will confirm that Central 

Bank guarantees can be considered for 

liquidity purposes only if the relevant 

Member posting them is in default 

because only in that situation the CCP 

would acquire full ownership of the 

guarantee provided by the Central Bank. 

Section 1.6.2.1, Liquidity needs 

arising from members’ defaults, will be 

revised to clarify the description of the 

liquidity needs that may arise from 

settlement. The following sentence: 

‘‘Cash outflows are generated when SA 

has to step in on behalf of the defaulted 

member to post cash to non-defaulting 

member(s) and take in the underlying 

collateral’’ has been revised to read: 

‘‘Cash outflows are generated when SA 

has to step in on behalf of the defaulted 

member to post cash to non-defaulting 

member(s) and take in the underlying 

securities’’. This change is being made 

to increase the accuracy of the 

document and does not represent a 

change in the methodology or procedure 

of LCH SA. 

Moreover, LCH SA will also specify 

that the value of the bonds pledged at 

the ECB to raise liquidity takes into 

account stress market conditions.24 The 

addition of the ‘‘stress market 

conditions’’ is thus performed for clarity 

in line with adjustments performed in 

the LCR model assumptions. 

Section 4 of the Framework, which 

explains the modelling Framework in 

detail, will be amended, as noted above, 

to enhance the manner in which the 

LCR is calculated, thereby increasing 

the robustness of LCH SA’s liquidity 

profile. This section discusses first, the 

calculation of the Operational Target, 

i.e., the amount of liquidity required to 

be held to satisfy LCH SA’s liquidity 

needs related to the operational 

management of LCH SA in a stressed 

environment, but one that does not lead 

to a Clearing Member’s default. The 

Operational Target ensures that LCH 

SA’s liquidity resources are always 

greater than its operational liquidity 

requirements. 

Section 4.1.2, Model inputs and 

Variable selection, will be revised to 

clarify that the repayment of excess cash 

as well as excess ECB eligible securities 

deposited to cover margin requirements 

are considered in the liquidity 

requirement of the Operational Target. 

Two footnotes will be updated to 

specify that Portuguese and Finnish 

government bonds posted via the 

triparty solution are excluded from the 

liquid assets (repayment of excess cash 

and stressed margin reduction) because 

these securities are not transferrable to 

the BdF due to operational constraints. 

These changes will increase the 

accuracy of the document and does not 

represent a change in the methodology 

or procedure of LCH SA. Finally, the 

change of branding from CC&G to 


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25Consistent with this change, LCH SA will take 

into account the maximum daily switches from 

cash and ECB eligible cash securities to non-Euro 

denominated securities observed over seven (7) 

days rather than five (5) days, as currently 

provided. 

26The overall compounded margin reduction will 

be above the maximum historical 7-day margin 

reduction observed. 

Euronext Clearing has been performed 

in line with the change of branding 

performed in the whole documentation 

and described below in the present 

19b4. 

Section 4.1.4, Mathematical formula, 

derivation and algorithm, and 

numerical approximation, will be 

revised to clarify that the Operational 

Target is calculated as the sum of the 

liquidity requirements described in 

Section 4.1.2 and that the liquidity 

requirements must always be lower than 

the resources available. This change will 

increase the accuracy of the Framework 

and does not represent a change in the 

methodology or procedure of LCH SA. 

Section 4.1.5, Model assumptions, 

will be revised to provide that liquidity 

resources must be sufficient to meet 

LCH SA’s liquidity requirements for the 

next seven (7) days in stressed 

situations. This section currently 

provides that liquidity resources must 

be sufficient to meet LCH SA’s liquidity 

requirements for the next five (5) days.25

The change incorporates a model 

validation recommendation to extend 

the LCR and consequently also the 

Operational Target to a 7 day period in 

order to align the liquidity monitoring 

time horizon to the RepoClear service 

new maximum holding period to 

manage a default (changed from a 3-day 

to 5-day holding period since the end of 

June 2022, to which LCH SA added 2 

days of settlement convention). 

Additionally, to enhance the clarity, 

details related to the management of the 

former horizon have been removed in 

order to clearly state that the horizon is 

7 days and results will be displayed 

without any aggregation. 

In addition (4.1.5.d), the provisions of 

this section describing the liquidity 

requirements drivers, which assume, in 

part, that 100 percent (100%) of the 

excess cash and excess ECB eligible 

securities will be withdrawn over the 3- 

day period will be revised. Specifically, 

the assumptions that the two largest 

individual Clearing Members will 

withdraw their excess on day one (T) 

and that the third and fourth largest 

Clearing Members will withdraw their 

excess on day two (T+1) will be revised 

to provide instead that (a) the two 

Clearing Member Groups that have the 

largest amount of excess collateral will 

withdraw their excess on T, and (b) the 

third and fourth Clearing Member 

Groups that have the next largest 

amount of excess collateral will 

withdraw their excess on T+1. In each 

case, the remaining Clearing Members 

will withdraw their excess on the third 

day (T+2). Precision on the footnote to 

specify that Portuguese and Finnish 

government bonds posted via the 

triparty solution are excluded from the 

liquid assets as these securities are not 

transferrable to the BdF due to 

operational constraints. 

For the liquidity requirement that 

aims to quantify the potential 

substitution of cash collateral/ECB 

eligible securities (4.1.5.e), LCH SA will 

take into account the maximum daily 

switches from cash and ECB eligible 

cash securities to non-Euro 

denominated securities observed over 

seven (7) days rather than five (5) days 

as currently provided to incoroporate 

the model valitation recommendation. 

In order to be consistent with this 

change from five to seven days in the 

time horizon, two additional definition 

of amount of switch corresponding to 

T+5 and T+6 have been added. 

Moreover, it will be clarified that on Q3 

2022 CaLM Front Office demonstrated 

the ability to transfer ECB eligible 

securities to BdF within 30 minutes for 

all eligible countries. The list of specific 

countries will be removed from the 

Framework as it is dynamic and 

depends on the collateral eligible at the 

CCP that can be found on the LCH SA 

website (a footnote will be added to 

point towards website). With respect to 

the amount of equity lodged, as LCH SA 

takes the maximum amount of switched 

observed, the reference to 100 million 

will be removed as the amount is a 

dynamic figure. It will also be precised 

that the amount of equity deposited over 

the past 3 years which is also a dynamic 

figure remains negligible. These changes 

will improve the accuracy of the 

Framework and do not represent a 

change in the methodology or procedure 

of LCH SA. 

For Section 4.1.5.f which describes 

the potential intraday additional 

liquidity injection that may generate 

securities carried overnight it will be 

specified that the amount is calibrated 

as the maximum EOD securities carried 

over night over the whole time series 

available. This change will increase the 

accuracy and clarity of the Framework 

and does not represent a change in the 

methodology or procedure of LCH SA. 

Moreover, Section 4.1.5.g will be 

revised to modify the targeted estimated 

margin reduction of non-defaulting 

Clearing Members. Currently, estimated 

margin reduction is calculated over a 

three-day period. As revised, targeted 

estimated margin reduction will be 

calculated over seven (7) consecutive 

days to address model validation 

recommendation.26 To reflect this 

change, a detailed table has been added 

describing the margin reduction rate per 

day of the horizon period in line with 

the above In order to enhance the 

wording, two bullet points have been 

revised to state that (a) margin reduction 

applied is greater than the biggest one 

observed in the historical window 

considered for the calibration (b) for 

each day, the reduction is over the 

99,7% percentile on the available set of 

data. In order to precise the size of the 

lookback period of observation, a 

footnote will be added detailing the 

current start date and end date. One 

footnote will be also updated to provide 

that Portuguese and Finnish government 

bonds posted via the triparty solution 

are excluded from the liquid assets 

because such securities are not 

transferrable to the BdF due to 

operational constraints. 

These additional changes will 

increase the accuracy and clarity of the 

document and does not represent a 

change in the methodology or procedure 

of LCH SA. 

Finally, Section 4.1.5.h will be 

reworded to specify that the liquidity 

requirements stemming from estimated 

Variation Margin payment to be 

processed towards the interoperable 

CCP is calculated on the basis of the 

Initial Margin actually posted at LCH 

SA to cover a 5-days holding period to 

be spread out over a 5-days period 

according to a simulated market stress 

based on historical yield shifts (third 

bullet point). The rewording of the 

introduction of 4.1.5.h aims to clarify 

the computation of the theoretical 

allocation of IM (leading to the removal 

of one footnote that was duplicated) as 

well as to reflect the change of branding. 

These changes will increase the 

accuracy and clarity of the document 

and does not represent a change in the 

methodology or procedure of the LCH 

SA. 

As mentioned, Please also note that 

reference to the depth of time series 

(4.1.5.e and 4.1.5.f) are proposed to be 

removed as available set of data are 

wider and every points are considered. 

This would avoid LCH to periodically 

review the depth in the wording. 

Finally, the notion ‘‘DF’’ has been 

added in 4.1.5.i to reflect the usual 

acronym of the default fund. The review 

was the opportunity also to correct a 

typo in the third bullet point of this 

section. 

Section 4.2 of the Framework, LCR, 

which describes the manner in which 


ddrumheller on DSK120RN23PROD with NOTICES1
1956 Federal Register / Vol. 89, No. 8 / Thursday, January 11, 2024 / Notices 

27As noted earlier, in addition to its CDSClear 

service, LCH SA provides clearing services in 

connection with cash equities and derivatives listed 

for trading on Euronext (EquityClear), commodity 

derivatives listed for trading on Euronext 

(CommodityClear), and tri-party Repo transactions 

(RepoClear). LCH SA also maintains an 

interoperability link with Euronext Clearing. 

the LCR is calculated, will be revised as 

follows: 

Section 4.2.1, Model overview, will be 

revised to provide that the purpose of 

the LCR Cover 2 scenario is to allow 

LCH SA to ensure that it has enough 

liquidity in the case of default of the 

two largest Members Groups during the 

seven (7) days following the default, 

rather than five (5) days, as is currently 

provided. Moreover the sentence: ‘‘3 

days holding period of margin 

collateral, i.e., SA ensures it has 

sufficient liquidity to meet nondefaulting member’s cash requests even 

if SA is waiting for the defaulter’s 

margin collateral to be liquidated’’ will 

be revised to read: ‘‘5 days holding 

period of margin requirement, i.e., SA 

ensures it has sufficient liquidity to 

meet non-defaulting member’s cash 

requests even if SA is waiting for the 

defaulter’s position to be liquidated’’. 

These changes will enhance the 

accuracy and clarity of the document 

and do not represent a change in the 

methodology or procedure of LCH SA 

(i.e., ‘‘requirement’’ is an enhanced 

wording as the objective is to cover the 

clean risk (collateral might include 

excess). Similarly, ‘‘positions’’ better 

clarifies the liquidity needs that are 

present until the final liquidation of the 

complete position of the Defaulted 

Members. 

Further, the sentence: ‘‘The ERCO has 

approved the 5 days liquidity horizon as 

per the article 22 of the Group liquidity 

risk policy’’ will be revised to read: 

‘‘The ERCO has approved the 7 days 

liquidity horizon as per the Group 

liquidity risk policy’’. The change will 

remove a dependency between the two 

documents as the number of articles 

may change when the Group Liquidity 

Policy is updated on an annual basis, 

while ensuring that the policy content is 

referred in the Framework. 

Finally, the sentence: ‘‘The cover 2 is 

computed by taking into account the 

liquidity risks related to clearing 

members within the same group across 

all services within the CCP that are 

aggregated’’ will be revised to read: 

‘‘The cover 2 is computed by taking into 

account the liquidity risks related to 

clearing members within the same 

group across all services of the CCP that 

are then aggregated’’. These last changes 

do not trigger any methodology changes 

but have been amended to enhance the 

clarity. The reference to footnote (24) is 

proposed to be removed as it refers to 

a non existing footnote (typo). 

Section 4.2.2, Model inputs and 

Variable selection, and Section 4.2.4, 

Mathematical formula derivation and 

algorithm and numerical 

approximation, will be revised to 

provide that securities pledged at the 

BdF and included among Total 

Available Assets will be valued at 

stressed market prices and include the 

ECB haircut effect on the resulting 

figures. The notion of ‘‘for each market’’ 

is proposed to be removed to preserve 

clarity. At the same time for the 

computation of VM erosion, the market 

risk impact arising from the contractual 

settlement of RepoClear will be 

excluded from the computation of the 

component as treated on the asset side 

as previously described (i.e., the 

component that was previously 

considered in liabilities will be 

incorporated in the assets as a reduction 

of the amount of liquidity sourced from 

the clearing securities pledged to BdF, 

cf 4.2.4.c). For this purpose, the 

sentence ‘‘on top of which is added the 

market stress risk impact on the 

contractual settlement for repoClear’’ 

will be removed. These changes have 

the purpose of adressing a model 

validation recommendation to enhance 

the treatment of market stress in the 

computation of liquidity sourced by the 

Central Bank. 

Moreover an update of wording will 

be done to consider the Total Default 

Liabilities and Total Available Assets as 

plural rather than singular as currently 

the case. It will be specified that in the 

VM Erosion calulation all LCH SA 

services are considered that is Cash & 

Derivatives, Repoclear, EGC, and CDS 

markets. Two footnotes will be updated 

to specify that Portuguese and Finnish 

government bonds posted via the 

triparty solution are excluded from the 

liquid assets because not transferrable to 

the BdF due to operational constraints 

(4.2.2/4.2.4). These changes have will 

increase the accuracy and clarity of the 

document and do not represent a change 

in the methodology or procedure of LCH 

SA. 

Finally, additional clarifications will 

be made regarding the treatment of 

FCM/BD client resources in the LCR. In 

particular, LCH SA will further specify 

that in a context of default (and purpose 

of the LCR monitoring) LCH SA will 

only treat FCM/BD client collateral as 

available liquidity resources if and only 

if this FCM/BD client defaults and 

generates some liquidity needs. Its 

resources will not be considered as 

available liquidity assets for any other 

FCM/BD clients and/or the FCM/BD 

clearing member or any other clearing 

member of the CCP. In particular, in 

case of one FCM/BD client defaulting, 

other FCM/BD clients assets will not be 

considered to cover the liquidity needs 

of the defaulting FCM/BD client. These 

changes are also replacing ‘‘clearing 

member’’ with client where relevant to 

increase clarity. 

The changes will enhance the 

accuracy and clarity of the document 

and does not represent a change in the 

methodology or procedure of LCH SA. 

Section 4.2.5, Model Assumptions, 

describes the various risks that each 

business line must consider in 

determining liquidity requirements as 

well as other liquidity requirements that 

LCH SA must meet.27 Title of Section 

4.2.5.1 will be changed to ‘Description 

of risks per Business line’ to reflect that 

different risks are tackled in different 

sub section. 

Section 4.2.5.1.1, RepoClear, will be 

revised to provide that settlement cash 

outflows will be calculated over a 

period of 7 days and on a gross basis, 

aggregated by ISIN, settlement date and 

Clearing Member level. The final 

settlement outflows are then aggregated 

at the Clearing Member Group level 

without allowing any netting across 

members of the same Clearing Member 

Group. The objective of these changes is 

to address two model validation 

recommendations: to align the LCR 

liquidity monitoring period to the 

RepoClear new maximum holding 

period to manage a default (5 days 

holding period of margin +2 of 

settlement convention); and to not allow 

any netting between entity of the same 

Group. Moreover, a table summarizing 

the liquidity requirements according to 

the direction of the repo transactions as 

well as a paragraph describing the 

specific treatment of forward starting 

repo in the calculation of the settlement 

obligation outflows have been removed 

because a new enhanced algorithm was 

designed and described in the new 

sections 4.2.5.1.1.1 and 4.2.5.1.1.2 as 

described later in the present form. One 

bullet point is proposed to be removed 

as well as the sentence ‘‘Note that the 

post default date forward start leg of 

cash borrower transaction are excluded 

for the LCR calculation (e.g., starts date: 

Default date + 1 day and returns legs: 

Default date +2). The transactions are 

performed through DVP so LCH SA will 

fail to deliver the securities leading no 

liquidity requirements related to the 

returns legs to factor in the LCR to keep 

consistency with the new algorithm. 

Section 4.2.5.1.1.1, Liabilities 

contractual obligations on physical 

delivery, will describe the methodology 


ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 89, No. 8 / Thursday, January 11, 2024 / Notices 1957 

to compute liabilities due to settlement 

obligations. In particular, in case of 

default, LCH SA shall assume and 

honour the obligations of the defaulted 

Members. In case of securities with 

physical settlement, this may represent 

substantial liquidity needs for LCH SA. 

The enhanced methodology presented 

in this section leverages on the actual 

management of settlement instructions 

performed by the Fixed Income 

Operations department during an event 

of default to fully take into account in 

the calculation of the liquidity needs the 

specific settlement dynamics over the 

time horizon of the LCR with the 

objective to more closely align the 

computation of the LCR with the actual 

default management process. 

To model the settlement obligation, 

the DCO would start by constructing the 

contractual balance of net buyer/seller 

position by Clearing Member, ISIN and 

date within the LCR time horizon: 

1. Identify transactions (each leg 

independently for repos) that settles 

within the time horizon of the LCR and 

allocate, to the settlement date, the 

contractual cash amount to be settled 

and the corresponding nominal of 

securities to be delivered; and 

2. Aggregate cash amounts and 

nominals by member, ISIN and date. 

This contractual view of cash and 

security flows is then adjusted to take 

into account the eventual effect of 

carrying forward the liquidity position 

(the effect of one day fails on the 

contractual flows of the following 

dates). In fact, in case of a net seller 

position on date t, LCH SA would fail 

to deliver securities if they are not 

already sourced and/or pledged at the 

BdF and would continue to fail until the 

date t’ on which the balance is net buyer 

(or until the end of the time horizon 

when the portfolio would be perfectly 

matched again). In that case, LCH SA 

would receive no cash on date t for the 

securities in which it fails to deliver and 

would need to inject less cash into the 

settlement system on date t’ because of 

the netting effect of carrying forward. 

The real cash injection flows obtained 

are aligned with the Operations Team 

view of the settlement obligation in case 

of default. 

When the real cashflow injections are 

obtained as described above for each 

member they are then aggregated at 

group level. 

A simplified numerical example is 

provided to demonstrate the sequence of 

steps used to calculate the liquidity 

needs deriving from settlement 

obbligation. 

The changes described in this section 

will improve the liquidity monitoring of 

LCH SA and address two model 

validation recommendations: to 

improve the liquidity needs estimation 

related to Settlement Risk and to not 

allow any netting between entity of the 

same Group. 

Section 4.2.5.1.1.2, Assets: settlement 

securities pledged at Central Bank, will 

describe the methodology to compute 

the liquidity raised through the pledge 

at a Central Bank of the settlement 

securities withdrawn from the 

settlement system on behalf of the 

defaulter. In particular, when LCH SA 

pledges eligible securities at the Central 

Bank in exchange of liquidity, two 

important factors need to be considered: 

—the market price of the securities that 

may be decreased by unfavorable 

market conditions therefore reducting 

the value of the collateral and 

consequently the amount of liquidity 

that can be sourced out of it; and 

—the haircut applied by the Central 

Bank when lending cash to LCH SA 

in exchange of securities. 

The changes described in the 

following paragraph provide a summary 

of the calculation performed by the DCO 

when modelling the liquidity that it 

would be able to source from the Central 

Bank. 

The amount raised is the sum of the 

unstressed assets value after taking into 

account the ECB haircut and a stress 

price market impact applied to the value 

of the securities. In order to calculate 

the amount of liquidity raised from the 

BdF, LCH SA will consider the real 

security flows calculated in Section 

4.2.5.1.1.1 which are equivalent to 

securities pledged at/retrieved from the 

BdF (with an opposite direction with 

respect to settlement). The securities are 

then valued at current market price at 

the moment of default with the 

application of an ECB haircut. To 

quantify the market impact, a 

preliminary screening is applied in 

order to identify correctly only the 

subset of transactions to which the 

market impact applies because they are 

not covered by offsetting inflow. In 

particular for long cash transactions or 

Cash Borrower Repo—Return Leg: 

• Before the settlement date: an 

eventual bond price decrease would 

result in a margin decrease of the nondefaulting member due to Variation 

Margin credit which is accounted for in 

the LCR liabilities in a separate entry. 

• On the settlement date: LCH SA 

would get the securities from the nondefaulting member, pledge them at the 

BdF and receive an amount of cash 

equal to the stressed price of the bond 

minus the haircut. The additional 

liquidity impact, with regards to the 

unstressed assets described previously, 

rises from the bond price move from the 

default date until the settlement date. 

Hereunder, we will refer to this 

component by ‘‘Settlement Market Price 

Impact’’. 

• After the settlement date: once the 

bond is pledged overnight, the price 

decrease afterwards would trigger an 

additional liquidity impact to cover the 

cash that needs to be returned to the 

BdF because of the lower amount of the 

collateral deposited, i.e., the price move 

from the settlement date until the date 

on which LCH SA will have a 

settlement obligation to deliver the bond 

(or until the book is perfectly matched 

again after the settlement of the 

auction). Hereunder, we will refer to 

this component by ‘‘Pledge Market Price 

Impact’’. 

The total market impact is calculated 

as the sum of Settlement Market Price 

Impact and Pledge Market Price Impact. 

The bond prices moves generating the 

market impact is calculated in 

accordance with RepoClear stress test 

scenarios. The final amount of liquidity 

retrieved from the BdF resulting from 

the pledge of securities retrieved from 

settlement on behalf of the defaulted 

members will be: 

Liquidity retrieved from the BdF (t) = 

Real Security Flow * Market Price 

at moment of default * (1¥ECB 

Haircut)¥Settlement Market Price 

Impact¥Pledge Market Price 

Impact. 

A simplified numerical example is 

added to the Framework to demonstrate 

the sequence of steps used to calculate 

the liquidity amount retrieved from the 

BdF. 

The change will improve the liquidity 

monitoring of LCH SA and address a 

model validation recommendation to 

improve the liquidity needs estimation 

related to Market Risk. 

To remain consistent with the 

calculation of settlement obligations, 

after calculating the Liquidity retrieved 

from the BdF for all dates in the LCR 

period at Member level, the amounts are 

aggregated at the Clearing Member 

Group level. This change address a 

model validation recommendation. 

Section 4.2.5.1.1.3, Market Risk, will 

be revised to provide that, in addition 

to the settlement obligations driven 

flows, the position of the defaulter may 

generate a liquidity drain for LCH SA in 

the form of negative mark to market to 

be paid to non-defaulting members. The 

formula to estimate this amount is 

changed and will consider the worst 

stress loss of the defaulter position 

according to the relevant RepoClear 

stress test scenario and add additional 

margin to model any concentration, 


ddrumheller on DSK120RN23PROD with NOTICES1
1958 Federal Register / Vol. 89, No. 8 / Thursday, January 11, 2024 / Notices 

28Please refer to changes to section 4.2.5.1.1.3 

described in the present document. 

29Please refer to changes for Sections 4.2.5.1.1.3, 

4.2.5.1.2.1 and 4.2.5.1.4 described in the present 

document. 

30 Id. 

31Please refer to changes for Sections 4.2.5.1.1.3, 

4.2.5.1.2.1, 4.2.5.1.3.1 and 4.2.5.1.3.2 described in 

the present document. 

market liquidity issues. The purpose of 

this change is to address a model 

validation recommendation by 

improving the liquidity needs 

estimation related to Market Risk in the 

LCR. Additionally, a footnote will be 

added to disclose that a list of stress 

scenario is reported in appendix 6.7. 

Section 4.2.5.1.2, ÖGCPlus, will be 

revised to provide that, when 

calculating the settlement driven cash 

outflows, the aggregation is based on 

data provided by the triparty agent and 

that only positions in which the 

defaulter is a cash borrower (collateral 

giver) in the first leg of the repo and, 

therefore, collateral taker when the repo 

closes, generate a liquidity need. 

Therefore, in case of default of a 

Member collateral giver in the first leg, 

LCH SA has to inject cash and withdraw 

securities when the repo closes (cf new 

footnotes). 

Finally a repetition of words have 

been cancelled to remove redundancy in 

the text. The changes will enhance the 

accuracy and clarity of the Framework 

and do not represent a change in the 

methodology or procedure of LCH SA. 

Section 4.2.5.1.2.1, Market risk, will 

be revised to provide that for ÖGCPlus 

the additional liquidity needs generated 

by negative mark to market payments to 

non-defaulting members is estimated in 

line with what is done for RepoClear 28

as the worst stress loss of the defaulter 

position according to the relevant 

ÖGCPlus stress test scenario and adding 

additional margins. The change will 

incorporate a model validation 

recommendation by improving the 

liquidity needs estimation related to 

Market Risk in the LCR. 

Moreover, a numerical example has 

been added to the Framework to 

demonstrate that the eventual BdF 

haircut will always be covered by the 

collateral posted by the collateral giver 

as requested by the current margin 

methodology (corresponding to 

‘‘Example’’). The change will increase 

the accuracy and clarity of the 

document and does not represent a 

change in the methodology or procedure 

of LCH SA. 

Section 4.2.5.1.3.1, Cash Equity, will 

be revised to provide that the settlement 

cash outflows will be calculated on a 

gross basis at the Clearing Member level 

and then aggregated at the Clearing 

Member Group level without allowing 

any netting across the Clearing Members 

of the same Group. The objective of the 

change is to enhance the accuracy and 

clarity of the document and does not 

represent a change in the methodology 

or procedure of LCH SA. 

Moreover, the methodology to 

consider among the liquidity 

requirements the equity settlement 

arising from the expiration of physically 

settled futures is detailed. In particular, 

in case the defaulting member is long 

futures which expire during the LCR 

horizon, LCH SA will have to pay the 

future price to the non-defaulting 

counterparty in order to settle the 

physical underlying. Therefore the 

enhanced algorithm daily identifies all 

the potential maturing long futures 

positions on the day of the computation 

and on the upcoming business day as 

well, identifies the positions of the 

Cover 2 Members Group and finally, 

given the potential physical settlement, 

adds the relevant liquidity needs to the 

computation of the LCR. A numerical 

example is included to provide a sample 

of the calculation.This change has the 

purpose of addressing a model 

validation recommendation by 

including the liquidity needs related to 

the expiry of physical delivery single 

stock futures in the LCR. 

In addition, this section will provide 

that the liquidity needs generated by 

negative mark to market payments to be 

made to non-defaulting members is 

changed in line with what is done for 

the other LCH SA services 29

(RepoClear, ÖGCPlus, CDSClear) and 

will be calculated as the worst stress 

loss of the defaulter position according 

to the relevant EquityClear stress test 

scenario with the addition of additional 

margins. 

The objective of the change is to 

incoporate a model validation 

recommendation by improving the 

liquidity needs estimation related to 

Market Risk in the LCR. 

A footnote has been added to improve 

the accuracy of the document to specify 

that the full list of stress scenarios used 

is presented in a dedicated Appendix. 

Finally, this section will explain that 

because equities are not eligible at the 

BdF they will not be considered as 

liquidity sources in the assets of the 

LCR. The change will increase the 

accuracy and clarity of the document 

and does not represent a change in the 

methodology or procedure of LCH SA. 

Section 4.2.5.1.3.2, Listed derivatives, 

will be revised to clarify that futures on 

equity index contracts are included 

among the listed derivatives 

instruments considered in the 

calculation of the LCR and that 

derivatives expirations occur on a 

monthly basis rather than the previously 

stated quarterly basis. These changes 

will improve the accuracy and clarity of 

the document and does not represent a 

change in the methodology or procedure 

of LCH SA (i.e., monthly expiry is 

already efficiently implemented in the 

computation of the LCR). 

The calculation of the liquidity needs 

generated by negative mark to market 

payments to be done to non-defaulting 

members is changed in line with what 

is done for the other LCH SA services 30

(RepoClear, ÖGCPlus, CDSClear) and 

will be calculated as the worst stress 

loss of the defaulter position according 

to the relevant EquityClear stress test 

scenario with the addition of Additional 

margins. The change will address a 

model validation recommendation by 

improving the liquidity needs 

estimation related to Market Risk in the 

LCR. Finally, please note scenario is 

now stated in plural to reflect that 

several scenarios (disclosed in appendix 

6.7) are used to model stressed VM. 

Section 4.2.5.1.4, Credit Default 

Swaps, will be revised to clarify that the 

calculation of the liquidity needs 

generated by negative mark to market 

payments to be done to non-defaulting 

members is changed in line with what 

is done for the other LCH SA services 31

(RepoClear, ÖGCPlus, EquityClear) and 

will be calculated as the worst stress 

loss of the defaulter position according 

to the relevant CDSClear stress test 

scenario with the addition of additional 

margins. The change adresses a model 

validation recommendation by 

improving the liquidity needs 

estimation related to Market Risk in the 

LCR. Finally, please note scenario is 

now stated in plural to reflect that 

several scenarios (disclosed in appendix 

6.7) are used to model stressed VM. 

A footnote have been added to 

improve the accuracy of the document 

to specify that the full list of stress 

scenarios is disclosed in a dedicated 

Appendix. 

Section 4.2.5.2 will be revised to 

modify those provisions of the 

Framework relating to the other 

liquidity requirements to be taken into 

account in calculating the LCR. 

Section 4.2.5.2.1 will be revised to 

provide that the Operational Target to 

be included in the calculation of the 

LCR will be restated by removing 

margin outflows calculated in the 

Operational Target and related to Cover 

2 for LCR. This is because LCH SA has 

the right to fully use the collateral of the 


ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 89, No. 8 / Thursday, January 11, 2024 / Notices 1959 

32Please refer to https://eur-lex.europa.eu/legalcontent/EN/TXT/?uri=CELEX%3A32023O0832. 

defaulters including excess. The 

changes enhance the accuracy and 

clarity of the document and do not 

represent a change in the methodology 

or procedure of LCH SA. 

Section 4.2.5.2.2, Margin non-cash 

collateral, will be revised to provide 

that LCH SA will compute the pure 

stress loss of such collateral rather than 

the stress loss over haircut (less 

conservative) as currently stated, by 

applying a set of stress scenarios used 

by RepoClear in the calibration of the 

Default Fund and choosing the one that 

generates the biggest liquidity exposure 

in terms of Cover 2. The choice of 

application of Repoclear scenarios is 

driven by the fact that only bonds 

deposited as collateral can be used to 

raise liquidity while equities are 

completely excluded from the 

calculation of liquid assets. The change 

aims to improve the liquidity 

monitoring by leveraging on the same 

coherent scenarios for all bonds position 

included in the LCR computation. A list 

of scenarios is disclosed in appendix of 

the LRMF. 

Section 4.2.5.2.3, CaLM investments, 

will be revised to specify that when 

calculating the liquidation losses related 

to the collateral posted by the defaulting 

Member through the reverse repo 

activity and the potential outright 

purchases losses deriving from the CCP 

portfolio, LCH SA will apply the driving 

stress scenario chosen among the set of 

scenarios from RepoClear consistent 

with the determination of the Cover 2 

described in section 4.2.5.4. ‘‘Potential’’ 

has been added because the loss on the 

outright portfolio will be only realized 

if the DCO is forced to sell the portfolio 

because of liquidity needs and does not 

wait until maturity. The changes will 

increase the accuracy and clarity of the 

document and do not represent a change 

in the methodology or procedure of LCH 

SA. 

Section 4.2.5.2.4, Collateral pledge 

modelling, is added to describe in 

details how pledged collateral has to be 

modelled when calculating the asset of 

the LCR. In particular LCH SA assumes 

that Clearing Members will utilize their 

ability to pledge collateral near the 

maximum allowed on each LCH SA 

service and, therefore, this amount will 

be subtracted from the amount of noncash collateral included in the LCR 

assets. 

The expected additional pledge will 

be calculated as the difference between 

the Maximum pledge capacity scaled by 

a parameter that can capture Clearing 

Members behaviour and the actual 

pledge capacity used currently by the 

Clearing Members. 

The Maximum pledge capacity 

amount will take into consideration 

eventual concentration limits in places 

for specific LCH SA services (i.e., 

Repoclear, ÖGCPlus and EquityClear). 

In contrast, for the Members not 

having a pledge account active, 

CDSClear non-cash collateral deposited 

under Full Title Transfer with the 

exclusion of securities in DKK, NOK, 

SEK, JPY, CHF, CAD and AUD is 

considered to be eligible to raise 

liquidity and, therefore, is included 

among liquidity resources. This section 

has been added to address a model 

validation recommendation by 

disclosing more details in the modelling 

of the collateral pledge. 

Section 4.2.5.3, Stress scenario 

selection, will be revised to clarify that 

the stress tests scenarios selected for 

each LCH SA service will be consistent 

with a market state resulting from the 

default of the Cover 2 as assumed by the 

LCR. The scenarios selected are taken 

from the set of scenarios used to 

calibrate the Default Fund amount on 

the different services and in particular 

include scenarios that simulate an 

increase in interest rates and credit 

spreads and a decrease of equity 

indexes. The change has the purpose of 

increasing the accuracy and clarity of 

the document and ensure that the stress 

scenarios chosen are coherent with the 

LCR assumption of Cover 2 default and 

the consequent increased volatility on 

the market. In other terms, additions of 

wording aim to highlight the 

consistency of stressed scenarios 

applied on different market to define the 

Cover 2 (i.e., rate up (iii), index and 

equities down (ii) and CDSClear 

widening (i)). 

A full list of the selected stress test 

scenarios for each service is set out in 

an Appendix to the Framework. The 

driving scenario is then selected as the 

one that produces the largest stress loss 

on a Cover 2 basis as described in 

Section 4.2.5.4. 

The list of scenarios has been updated 

to select, among the available scenarios 

used by the LCH SA services, only the 

most relevant ones given the LCR 

assumptions. The purpose is to improve 

the liquidity monitoring of LCH SA. 

In addition, when describing the 

additional stress scenario where a 

downgrade of sovereign ratings results 

in an increase of ECB haircuts applied 

when the securities are pledged at the 

BdF to raise liquidity, the table 

reporting the values of the ECB haircuts 

applicable will be updated. The new 

values are the official values applied by 

the ECB32 on each eligible collateral 

posted to raise liquidity as a function of 

the collateral category and maturity. 

Section 4.2.5.4, Cover 2 selection, 

provide the description of the 

methodology used by the DCO to 

identify the two Member Groups most 

exposed in term of liquidity (Cover 2) 

which are assumed to be simultaneously 

in default in the LCR. Liquidity needs 

deriving from Settlement risk, Market 

risk and Investment risk are aggregated 

to rank the Member Group and identify 

the most exposed ones. The section will 

be revised to specify that the Cover 2 

will be identified by calculating the 

following liquidity requirements at the 

Clearing Member Member level, 

aggregating the total requirement at the 

Clearing Member Group level and then 

choosing the two most exposed Clearing 

Member Groups: 

• Stress Variation Margin: for all the 

services the variation margins are 

modelled by applying the most punitive 

scenario among the chosen sets and 

consistent with the LCR assumptions; 

• Settlement liquidity requirements 

due to RepoClear and Cash equity 

settlement obligations. In case of 

securities pledged at the BdF their value 

would be stressed according to the 

scenario that would generate the highest 

loss; 

• Non-cash Collateral stress losses are 

estimated by stressing the non-cash 

collateral eligible for BdF liquidity with 

the set of scenarios consistent with the 

LCR assumptions; 

• Investment stress losses over 

haircut are estimated by applying the 

stress scenarios to the collateral 

received from the reverse repo activity 

with each specific counterpart; and 

• ECB Haircut impact is quantified by 

applying the relevant haircut to all the 

securities received from a specific 

member that are eligible for Central 

Bank liquidity. 

Between the set of scenarios used 

from the RepoClear Stress Test 

framework, the set of scenarios used 

from the CDSClear Stress Test 

framework and the set of scenarios used 

from the EquityClear stress test 

framework, only the one jointly 

generating the maximum loss of the sum 

of all the above elements for the two 

most exposed Clearing Member Groups 

will be used to determine the Cover 2 

and calculate the final LCR. 

The changes have the objective to 

coherently include in the computation 

of the Cover 2 the changes related to the 

update of the stress test scenarios 

considered in the LCR (described in 


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33See, Section 5.1, Ongoing Monitoring, Section 

5.3, Reverse Stress Test, and Section 5.3.1, 

Independent stress of various risk factors. 

34 17 CFR 240.17Ad–22(e)(7)(vi)(B). 

35 17 CFR 240.17Ad–22(e)(7)(vi)(C). 

36Combined reverse stress test scenario are 

known as ‘‘non core’’. Please refer to change to 

Section 1.4 described previously herein. 

Section 4.2.5.3), the changes related to 

the impact of market risk on the 

securities pledged at Central Bank 

(described in Section 4.2.5.1.1.2) and 

the changes related to the estimation of 

the Variation Margin Outflows 

(described in Sections 4.2.5.1.1.3, 

4.2.5.1.2.1, 4.2.5.1.3.1, 4.2.5.1.3.2 and 

4.2.5.1.4). 

—Section 4.3: All the changes reflect the 

new branding of CC&G (Euronext 

Clearing). No change in the 

methodology or procedure applied by 

LCH. 

Section 5, Model Performance Testing 

and Ongoing Monitoring, will be revised 

to provide throughout that the length of 

time for which LCH SA must maintain 

liquidity resources sufficient to meet its 

liquidity requirements for each service 

will be extended from five (5) days to 

seven (7) days.33 In addition, Section 

5.1, Ongoing Monitoring, will be revised 

to provide that cash or non-cash 

collateral available for pledge to the BdF 

should represent at least 25 percent 

(25%) of LCH SA’s available liquid 

resources after the default of its most 

significant Clearing Member. This 

section currently provides that cash 

alone should represent at least 25 

percent (25%) of LCH SA’s available 

liquid resources after the default of its 

most significant Clearing Member. This 

change will align the text of the 

Framework to the updated text of the 

Liquidity Policy approved in 2022. 

Section 5.3 on Reverse Stress Tests 

will be modified to include a paragraph 

providing the regulatory requirements 

pursuant to SEC Rule 17Ad– 

22(e)(7)(vi)(B) 34 and SEC Rule 17Ad– 

22(e)(7)(vi)(C).35

Consistent with this change, Section 

5.3.1, Independent stress of various risk 

factors, which describes the single 

factor reverse stress test (or ‘core’ 

reverse stress test), which examines the 

stress on liquidity outflows caused by 

different risk factors that are 

independently stressed (one signle 

factor at time) to assess extreme market 

conditions necessary to observe a breach 

of the LCR limit will be revised as 

follow: 

• Risk Factor 1: Liquid Assets 

Reduction 

It will be stated that non-cash 

collateral deposited by Clearing 

Members and eligible for pledge at the 

BdF represents another primary source 

of liquidity for LCH SA. 

The sentence ‘A primary source of 

liquidity for a CCP is from investments 

maturing management by the CaLM 

team at the opening of the day’ will be 

revised to ‘A primary source of liquidity 

for a CCP is from investments maturing 

management performed by the CaLM 

team at the opening of the day’. 

The sentence ‘The overall liquid asset 

is reduced to obtain the stress required 

to reduce the LCR below 100%’ will be 

revised to ‘The overall liquid assets are 

reduced to obtain the stress required to 

reduce the LCR below 100%’. 

The changes described will improve 

the accuracy and clarity of the 

document and do not represent a change 

in the methodology or procedure of LCH 

SA. 

Moreover it will be stated that the 

reduction in assets necessary to breach 

the LCR will be compared against the 7 

days historical data in order to assess 

the plausibility of the scenario rather 

than the 5 days historical data currently 

reported. The change has the purpose of 

aligning the time horizon of the reverse 

stress with the time horizon of the LCR 

(described in Section 4.2.1). 

• Risk Factor 2: Switches to Non ECB 

Eligible Assets 

It will provide that when calculating 

the single factor reverse stress test that 

simulates a switch of collateral from 

ECB eligible assets to non-ECB eligible 

assets such that a liquidity breach 

occurs, the non-ECB eligible assets 

includes GILT or US bonds, Central 

Bank guarantee, equities, non-Euro non 

cash collateral, and pledge collateral. 

The addition of pledge collateral to the 

list will improve the accuracy and 

clarity of the document and does not 

represent a change in the methodology 

or procedure of LCH SA. 

The required amount of switches 

necessary to produce a liquidity breach 

will be compared against the 7 days 

historical data rather than the 5 days 

historical data currently reported in the 

Framework. The change has the purpose 

of aligning the time horizon of the 

reverse stress to the tme horizon of the 

LCR. 

• Risk Factor 3: Rating Downgrade of 

the Euro Zone Peripheral and Core 

Countries 

The sentence ‘This reverse stress test 

aims at modelling the downgrade of the 

relevant countries and estimate the 

theoretical ECB haircuts generating a 

liquidity shortfall’ will be revised to 

‘This reverse stress test aims at 

modelling the downgrade of the relevant 

countries and estimate the theoretical 

ECB haircuts needed to generate a 

liquidity shortfall’. 

The change described will improve 

the accuracy and clarity of the 

document and does not represent a 

change in the methodology or procedure 

of LCH SA. 

• Risk Factor 6: CC&G VM 

The subparagraph will be renamed 

Risk Factor 6: CC&GEuronext Clearing 

VM to reflect the updated name of the 

interoperable CCP. 

The sentence ‘The direction of the 

position’ will be revised to ‘The 

direction of the positions’. 

The change described will improve 

the accuracy and clarity of the 

document and does not represent a 

change in the methodology or procedure 

of LCH SA. 

Moreover it will be stated that this 

specific reverse stress test aims to asses 

the amount of VM fails by the 

interoperable CCP during 7 days that 

could generate a liquidity shortfall 

rather than 5 days as currently reported 

in the Framework. The change has the 

purpose of aligning the time horizon of 

the reverse stress to the tme horizon of 

the LCR. 

• Risk Factor 7: Multiple Defaults 

The sentence ‘Given that liquidity 

requirements are sized to a cover 2 

standard, is it plausible that more than 

2 members defaults who could lead to 

a liquidity deficit’ will be revised to 

‘Given that liquidity requirements are 

sized to a cover 2 standard, is it 

plausible that more than 2 member 

Groups defaults who could lead to a 

liquidity deficit’. 

In addition, the sentence: ‘‘In order to 

answer this question, LCH SA ranks 

order Members Groups based on their 

ICS and starting from the ones with the 

worst ICS (and hence highest 

probabilities of default)’’ will be revised 

to read: ‘‘In order to answer this 

question, LCH SA ranks Members 

Groups based on their ICS and starts 

considering the ones with the worst ICS 

(and hence highest probabilities of 

default)’’. 

Finally it will be added that all 

Clearing Member Groups with a credit 

score of 6 or higher will be considered 

in the reverse stress test. The changes 

described will improve the accuracy 

and clarity of the document and does 

not represent a change in the 

methodology or procedure of LCH SA. 

Section 5.3.2.1, Context & Objective, 

will be revised to provide that the 

combined reverse stress test scenarios 36

that include multiple risk factors will be 


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37Figures as of October 2022. 

38 Id. 

performed at least quarterly. The 

purpose of the change is to align the 

frequency of combined reverse stress 

stress described in the framework to the 

one state in the Liquidity Risk Policy. 

Section 5.3.2.2, Behavioural scenario, 

will be revised to provide a more 

updated example of report layout. The 

change will increase the accuracy and 

clarity of the document and does not 

represent a change in the methodology 

or procedure of LCH SA. 

Section 5.3.2.3, Macro-economic 

scenario, describes the reverse stress 

test, which examines the stress on 

liquidity outflows caused by a set of 

macro-economic scenarios that combine 

market, credit and concentration risk to 

determine the number of defaults that 

LCH SA can sustain in a shocked macroeconomic environment until it suffers a 

liquidity shortfall. This section will be 

revised, in part, to clarify that the 

market risk driving scenarios will be 

selected from the scenarios used to 

calculate LCR in accordance with the 

logic described in Section 4.2.5.4. The 

current Framework considers only 2 

macroeconomic scenarios that will be 

replaced by the new set of scenarios 

dscribed in Appendix 6.7. Additional 

external rating downgrade will be 

considered on top of the selected market 

risk scenario as it is the case of the 

current Framework. 

Moreover, the Operational outflow 

considered in the scenario will be 

aligned to the calculation of the 

Operational Target and therefore 

assuming a margin reduction of 24.7% 

over 7 days. 

The changes will improve the 

liquidity monitoring of LCH SA by 

aligning the reverse stress test 

calculation to the changes proposed for 

the LCR and described in Sections 

4.1.5g, 4.2.5.3, 4.2.5.4, and Appendix 

6.7. 

This Section will also be revised to 

provide that LCH SA will consider 

Clearing Member Groups, rather than 

individual Clearing Members, when 

simulating the multiple defaults driven 

by credit quality criteria, concentration 

criteria or total liquidity exposure 

criteria as this Section currently 

provides. The changes will improve the 

accuracy and clarity of the document 

and does not represent a change in the 

methodology or procedure of LCH SA. 

• Multiple Defaults Based on the Credit 

Quality of the Member Groups 

The sentence ‘By expanding the 

analysis presented on the individual 

risk factor 8 this case highlights the 

evolution of the LCR for each macroeconomic scenario’ will be revised to 

‘By expanding the analysis presented on 

the individual risk factor 7 this case 

highlights the evolution of the LCR 

under the driving macro-economic 

shock scenario’. The change has the 

purpose of correcting a typo and alignin 

the description to the new computation 

of the driving macroeconomic scenario 

described above. 

Moreover, the example table that 

reports a sample of member Groups and 

their respective liquidity needs will be 

updated to anonymize the name of each 

Group. 

• Multiple Defaults of the Most 

Concentrated Countries (FR & US 

Member Groups) 

The sentence ‘More specifically, we 

assume that the Macro-Eco 2 scenario 

(Peripheral shock accompanied with a 

contagion on core countries) affects 

French and the European entities of the 

US members (two different simulations)’ 

will be revised to ‘More specifically, we 

assume that the Driving macro economic 

scenario affects French and the 

European entities of the US members 

(two different simulations)’. The change 

will align the description to the new 

computation of the driving 

macroeconomic scenario described 

above. 

Moreover, the various report 

examples reported in this section 

displaying the multiple defaults of 

member Groups from most concentrated 

countries will be updated 37 to provide 

a more recent example of report layout. 

The change will increase the accuracy 

and clarity of the document and does 

not represent a change in the 

methodology or procedure of LCH SA. 

• Default of the Biggest Member Groups 

in Terms of Liquidity (Cover N) 

The report example reported in this 

section displaying the default of the 

biggest Member Groups in terms of 

liquidity will be updated 38 to provide a 

more recent example of report layout. 

The change will increase the accuracy 

and clarity of the document and does 

not represent a change in the 

methodology or procedure of LCH SA. 

Section 5.3.3 is being added to the 

Framework in order to include 

provisions governing frequency and 

reporting. This section specifies that 

LCH SA performs core reverse stress 

tests at least on a monthly basis and that 

the results of the analysis are shared 

with the CRO on a monthly basis and 

quarterly to LCH SA Risk Committee. 

LCH SA also performs an ad-hoc 

analysis of the existing stress testing 

scenarios, models, and underlying 

parameters and assumptions used in 

evaluating liquidity needs and resources 

through the core reverse stress tests 

exercise (i) when the products cleared 

or markets served display high volatility 

or become less liquid, (ii) when the size 

or concentration of positions held by the 

clearing agency’s participants increases 

significantly, or (iii) in any other 

appropriate circumstances that would 

lead to a liquidity coverage ratio falling 

below the alert threshold of 107%. The 

ad-hoc analysis triggered by a liquidity 

coverage ratio falling below 107% are 

reported to LCH SA CRO, the Head of 

LCH SA Collateral and Liquidity 

Management division and to the LCH 

SA Risk Committee. 

Section 5.5, Testing Summary and 

Model Limitation, will be revised to add 

a footnote to provide that single factor 

reverse stress tests are performed 

monthly. Single and combined reverse 

stress tests are performed quarterly. 

These requirements come from the LCH 

Liquidity Risk Policy. 

Appendix 6.2, Members behavior 

analysis, that analyses the assumptions 

used in calculation the Operational 

Target and the LCR will be revised to 

provide that the volume of the non-ECB 

eligible non cash collateral (mainly 

Gilts, U.S. Treasury securities, securities 

denominated in Danish Krone, 

Norwegian Krone, Swedish Krona, 

Japanese Yen, Swiss Francs, Canadian 

Dollars and Australian Dollars and 

Central Bank Guarantee) will remain at 

a level that does not downgrade LCH SA 

liquidity profile (i.e., quarterly reverse 

stress test) and that LCH SA imposes 

concentration limits on non-Euro non 

cash collateral. The change will enhance 

the accuracy and clarity of the 

document and does not represent a 

change in the methodology or procedure 

of LCH SA. 

Moreover, this Appendix will be 

revised to specify that the margin 

reduction is estimated at 24.7% over 7 

days assuming that the daily margin 

reductions are independent (sum of the 

daily margin reduction vs. 7 days 

margin reduction). This level is bigger 

than the historical margin reduction 

over 7 days observed over a 10-year 

lookback period. This change has the 

purpose of updating the Appendix to be 

coherent with the changes described is 

Section 4.1.5 and driven by the 

necessity to address a model validation 

recommendation. Finally the graph 

reporting the LCH SA total margin is 

updated to provide a more recent 

orverview of the data. 

Appendix 6.3, Reminder of SA’s 

sources of liquidity and related risk 

drivers, will be revised to update the 

table to include as a risk driver the 


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39 15 U.S.C. 78q–1. 

40 15 U.S.C. 78q–1(b)(3)(F). 

41 17 CFR 240.17Ad–22(e)(7)(ii). 

42 15 U.S.C. 78q–1(b)(3)(F). 

43 17 CFR 240.17Ad–22(e)(7)(ii). 

44 17 CFR 240.17Ad–22(e)(1). 

pledge collateral. In particular it will 

provide that because of higher concern 

toward LCH SA, the Clearing Members 

may increase their use of the pledge 

collateral capacity. This behavior is 

modelled in the LCR. Moreover, LCH 

SA may adjust the maximum limit 

allowed in pledge. 

The change will align the Appendix 

with what presented in Section 4.2.5.2.4 

and highlighted above. 

In addition, when reporting the cash 

settlement option in case of Euronext 

Clearing default, the following footnote 

will be updated to read: ‘‘There is a 

residual risk (uncertainty—delay/ 

amount—with regards SA’s margins 

return by Euronext Clearing 

administrator)’’. The footnote is 

amended following the completion by 

LCH SA of its review of risk drivers and 

related mitigation measures for cash 

received from Euronext Clearing. 

Appendix 6.4, Liquidity risk drivers 

synthesis by reports, will be revised to 

update the table summarizing the 

components of each liquidity indicator 

(Operational Target, LCR Cover 2 and 

LCR Euronext Clearing) to reflect the 

fact that the liquidity monitoring period 

will be extended from 5 days to 7 days 

and that the overall margin reduction 

considered is 24.7%. Moreover, for LCR 

Cover 2, the Appendix will provide that 

when calculating the settlement 

obligation and the resulting BdF 

liquidity, the securities pledge will take 

into account ECB haircut and market 

stress, and when estimating excess 

reduction LCH SA will consider only 

non-defaulting Clearing Members as 

LCH SA has the right to use for liquidity 

purposes any amounts left in excess 

from a defaulting Clearing Member. 

Appendix 6.5, Liquidity risk 

monitoring report, will be updated by 

including the more recent layout 

versions of liquidity reports used by the 

DCO to monitor liquidity. The change 

will improve the accuracy and clarity of 

the document and does not represent a 

change in the methodology or procedure 

of LCH sA. 

Appendix 6.7, Stress scenarios list, 

will be added to report the specific list 

of stress scenarios used for each service. 

Appendix 6.8, Pseudo-code of 

settlement and market risk calculation, 

will be added to provide the details on 

the algorithm used to calculate the 

settlement obligation driven liquidity 

requirements in the monitoring of the 

LCR and the resulting BdF liquidity 

raised by pledging the securities 

withdrawn from the settlement systems. 

This appendix translate into a pseudo 

code the algorithm described in detail in 

sections 4.2.5.1.1.1 (liabilities 

contractual obligations on physical 

delivery) and 4.2.5.1.1.2 (settlement 

securities pledged at Central Bank). 

Different steps of computation are 

described covering both liabilities and 

assets and the resulting aggegations to 

get the finale outputs. The Appendix 

has the purpose of providing a technical 

overview of the implementation of the 

algorithm described in the referred 

sections and duly commented in the 

present 19b4. Please refer to such 

sections for a theorical decription of the 

methodology. 

Finally in the whole Framework the 

name of the interoperable CCP have 

been updated from ‘‘Cassa di 

Compensazione e Garanzia (CC&G)’’ 

into ‘‘Euronext Clearing’’. 

2. Statutory Basis 

LCH SA has determined that the 

Proposed Rule Change is consistent 

with the requirements of Section 17A of 

the Act 39 and regulations thereunder 

applicable to it. In particular, Section 

17A(b)(3)(F) of the Act requires, inter 

alia, that the rules of a clearing agency 

should be designed to ‘‘promote the 

prompt and accurate clearance and 

settlement of securities 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[.]’’ 40 In 

addition, Regulation 17Ad–22(e)(7)(ii) 41

requires a covered clearing agency to 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to assure that it 

holds qualifying liquid resources 

sufficient to meet the minimum 

liquidity resource requirement in each 

relevant currency for which the covered 

clearing agency has payment obligations 

owed to clearing members. 

As discussed above, the Framework is 

being amended primarily to enhance the 

manner in which the LCR is calculated, 

thereby increasing the robustness of 

LCH SA’s liquidity profile. In particular, 

the amendments will: (a) revise the 

manner in which the settlement 

obligation is calculated by aligning it to 

the actual process used by the 

Operations Team during a default 

management and ensuring that no 

netting is allowed between Members of 

the same Group; (b) revise the manner 

in which securities pledged to the 

Banque de France are valued by 

providing that such securities be valued 

at the stressed mark-to-market price 

rather than the contract price; (c) extend 

from five (5) days to seven (7) days the 

length of time for which LCH SA must 

maintain liquidity resources sufficient 

to meet its liquidity requirements; (d) 

include the liquidity needs generated by 

the expiration of physically settled stock 

futures in the liquidity monitoring; and 

(e) require LCH SA, in calculating its 

required liquidity resources, to take into 

account that Clearing Members may 

switch from depositing non-cash 

collateral in a Full Title Transfer 

Account, which may be pledged at the 

BdF to obtain a liquidity line of credit, 

to depositing non-cash collateral instead 

in a Pledge Account. 

By enhancing the manner in which 

the LCR is calculated, thereby 

increasing the robustness of LCH SA’s 

liquidity profile, the policies and 

procedures set out in the amended 

Framework are designed to promote the 

prompt and accurate clearance and 

settlement of securities transactions and 

continue to assure the safeguarding of 

securities and funds that are in LCH 

SA’s custody or control or for which it 

is responsible to be consistent with the 

requirements of Section 17A(b)(3)(F) of 

the Act.42 Specifically, the Proposed 

Rule will revise the manner in which 

the settlement obligation liquidity 

requirements are calculated, revise the 

manner in which securities pledged at 

the BdF are valued, extend the length of 

time LCH SA must maintain its liquidity 

resources, include the liquidity needs 

from the expiration of physically settled 

stock futures and account for in the way 

LCH SA calculates its liquidity 

resources, the process by which 

Clearing Members pledge non-cash 

collateral. Further, the amended 

Framework continues to assure that 

LCH SA holds qualifying liquid 

resources sufficient to meet the 

minimum liquidity resource 

requirement in each relevant currency 

for which the covered clearing agency 

has payment obligations owed to 

Clearing Members, as required by 

Regulation 17Ad–22(e)(7)(ii).43

LCH SA also believes that the 

Proposed Rule Change is consistent 

with Exchange Act Rule 17Ad– 

22(e)(1) 44 that requires a covered 

clearing agency to establish, implement, 

maintain and 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. As described 

above, the Proposed Rule Change will 

ensure that the Framework complies 

with the provisions of SEC Rule 17Ad– 


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45 17 CFR 240.17Ad–22(e)(7). 

46 17 CFR 240.17Ad–22(e)(7)(vi). 

47 17 CFR 240.17Ad–22(e)(7)(vi)(B). 

48 17 CFR 240.17Ad–22(e)(7)(vi)(C). 

49 17 CFR 240.17Ad–22(e)(7)(vi)(B). 

50 17 CFR 240.17Ad–22(e)(7)(vi)(C). 

51 17 CFR 240.17Ad–22(e)(7)(vi)(B). 

52 17 CFR 240.17Ad–22(e)(7)(vi)(C). 

53 15 U.S.C. 78q–1(b)(3)(I). 54 17 CFR 200.30–3(a)(12). 

22(e)(7) 45 with respect to liquidity risk, 

including with respect to its 

requirement to determine the amount 

and regularly test the sufficiency of the 

liquid resources held for purposes of 

meeting the minimum liquid resource 

requirement.46

Finally, LCH SA believes that the 

Proposed Rule Change is consistent 

with Exchange Act Rule 17Ad– 

22(e)(7)(vi)(B) 47 and Rule17Ad– 

22(e)(7)(vi)(C).48 Rule 17Ad– 

22(e)(7)(vi)(B) requires a covered 

clearing agency to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

effectively measure, monitor, and 

manage the liquidity risk that arises in 

or is borne by the covered clearing 

agency, including measuring, 

monitoring, and managing its settlement 

and funding flows on an ongoing and 

timely basis, and its use of intraday 

liquidity by . . . [d]etermining the 

amount and regularly testing the 

sufficiency of the liquid resources held 

for purposes of meeting the minimum 

liquid resource requirement [as required 

by SEC Rule 17Ad–22(e)(7)(i)] by 

establishing requirements for 

conducting monthly comprehensive 

analyses of stress testing scenarios, 

models, parameters and assumptiosn 

with respect to liquidity needs.49 Rule 

17Ad–22(e)(7)(vi)(C) further provides 

that LCH SA conduct such analyses 

more frequently than monthly, ‘‘the 

products cleared or markets served 

display high volatility or become less 

liquid, when the size or concentration of 

positions held by [LCH SA’s] 

participants increases significantly.’’ 50

LCH SA is proposing to amend the 

Framework to reflect its current practice 

of conducting monthly analysis of its 

existing stress testing scenarios, models, 

and underlying parameters and 

assumptions used in evaluating 

liquidity needs and resources for 

purposes of ensuring they are 

appropriate for determining the LCH 

SA’s identified liquidity needs and 

resources in light of current and 

evolving market conditions. LCH SA is 

also proposing to amend the Framework 

to include the additional requirement 

that it conduct more frequent analysis 

when the products cleared or markets 

served display high volatility or become 

less liquid, when the size or 

concentration of positions held by LCH 

SA’s participants increases significantly, 

or in other appropriate circumstances. 

By revising the Framework to reflect its 

current practice of conducting monthly 

analysis and including the requirement 

to conduct more frequent analysis, 

subject to certain conditions, LCH SA 

believes that the Proposed Rule Change 

is therefore consistent with Exchange 

Act Rule 17Ad–22(e)(7)(vi)(B) 51 and 

Rule 17Ad–22(e)(7)(vi)(C).52

B. Clearing Agency’s Statement on 

Burden on Competition 

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

requires that the rules of a clearing 

agency not impose any burden on 

competition not necessary or 

appropriate in furtherance of the 

purposes of the Act.53 LCH SA does not 

believe the Proposed Rule Change 

would have any impact, or impose any 

burden, on competition. The Proposed 

Rule Change does not address any 

competitive issue or have any impact on 

the competition among central 

counterparties. LCH SA operates an 

open access model, and the Proposed 

Rule Change will have no effect on this 

model. 

C. Clearing Agency’s Statement on 

Comments on the Proposed Rule 

Change Received From Members, 

Participants or Others 

Written comments relating to the 

Proposed Rule Change have not been 

solicited or received. LCH SA will 

notify the Commission of any written 

comments received by LCH SA. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the self-regulatory organization 

consents, the Commission will: (A) by 

order approve or disapprove such 

proposed rule change, or (B) institute 

proceedings to determine whether the 

proposed rule change should be 

disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments May Be Submitted by Any of 

the Following Methods 

• Use the Commission’s internet 

comment form (https://www.sec.gov/ 

rules/sro.shtml) or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

LCH SA–2023–007 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to file 

number SR–LCH SA–2023–007. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (https://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Copies of such filings 

will also be available for inspection and 

copying at the principal office of LCH 

SA and on LCH SA’s website at https:// 

www.lch.com/resources/rulebooks/ 

proposed-rule-changes. 

Do not include personal identifiable 

information in submissions; you should 

submit only information that you wish 

to make available publicly. We may 

redact in part or withhold entirely from 

publication submitted material that is 

obscene or subject to copyright 

protection. All submissions should refer 

to File Number SR–LCH SA–2023–007 

and should be submitted on or before 

February 1, 2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.54

Christina Z. Milnor, 

Assistant Secretary. 

[FR Doc. 2024–00383 Filed 1–10–24; 8:45 am] 

BILLING CODE 8011–01–P 


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