Federal Register / Vol. 89, No. 20 / Tuesday, January 30, 2024 / Notices 5949 

5 15 U.S.C. 78s(b)(3)(A). 

6 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 

4(f)(6) requires a self-regulatory organization to give 

the Commission written notice of its intent to file 

the proposed rule change at least five business days 

prior to the date of filing of the proposed rule 

change, or such shorter time as designated by the 

Commission. The Exchange has satisfied this 

requirement. 7 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Partial Amendment No. 1 updates the 

pagination throughout Exhibit 5 to File No. LCH 

SA–2023–008 and the Table of Contents in Exhibit 

5 to File No. LCH SA–2023–008 to reflect the 

revised pagination. Partial Amendment No. 1 would 

also remove two references to field codes in Chapter 

1 of Exhibit 5 to File No. LCH SA–2023–008. 

enhancing transparency and enabling 

market participants to better assess the 

quality of MIAX Pearl Equities’ 

execution and routing services by 

continuing to provide market 

participants with insight and 

transparency into which data feeds the 

Exchange utilizes when performing 

order handling, order execution, 

routing, and related compliance 

processes for equity securities. The 

Exchange also believes the proposal 

would enhance competition because it 

will potentially enhance the 

performance of its order handling and 

execution of orders in equity securities 

by receiving market data directly from 

IEX. Lastly, the proposed rule change 

will not impact competition between 

market participants because it will affect 

all market participants equally. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

Written comments were neither 

solicited nor received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Because the foregoing proposed rule 

change does not: (i) Significantly affect 

the protection of investors or the public 

interest; (ii) impose any significant 

burden on competition; and (iii) become 

operative for 30 days after the date of 

the filing, or such shorter time as the 

Commission may designate, it has 

become effective pursuant to 19(b)(3)(A) 

of the Act 5 and Rule 19b–4(f)(6) 6

thereunder. 

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. If the 

Commission takes such action, the 

Commission shall institute proceedings 

to determine whether the proposed rule 

should be approved or disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

PEARL–2024–04 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–PEARL–2024–04. 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 the filing also 

will be available for inspection and 

copying at the principal office of the 

Exchange. 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–PEARL–2024–04 and should be 

submitted on or before February 20, 

2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.7

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–01747 Filed 1–29–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

Sunshine Act Meetings 

FEDERAL REGISTER CITATION OF PREVIOUS

ANNOUNCEMENT: Publishing in the FR of 

1/29/24 

PREVIOUSLY ANNOUNCED TIME AND DATE OF

THE MEETING: Wednesday, January 31, 

2024, at 9:00 a.m. 

CHANGES IN THE MEETING: The Open 

Meeting scheduled for Wednesday, 

January 31, 2024, at 9:00 a.m., has been 

changed to Wednesday, January 31, 

2024, at 9:30 a.m. 

CONTACT PERSON FOR MORE INFORMATION: 

For further information; please contact 

Vanessa A. Countryman from the Office 

of the Secretary at (202) 551–5400. 

Authority: 5 U.S.C. 552b. 

Dated: January 26, 2024. 

J. Matthew DeLesDernier, 

Deputy Secretary. 

[FR Doc. 2024–01948 Filed 1–26–24; 4:15 pm] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–99423; File No. SR–LCH 

SA–2023–008] 

Self-Regulatory Organizations; LCH 

SA; Order Approving Proposed Rule 

Change, as Modified by Partial 

Amendment No. 1, Relating to 

Recovery and Resolution 

January 24, 2024. 

I. Introduction 

On November 24, 2023, Banque 

Centrale de Compensation, which 

conducts business under the name LCH 

SA (‘‘LCH SA’’), filed with the 

Securities and Exchange Commission 

(‘‘Commission’’), pursuant to Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (‘‘Act’’) 1 and Rule 19b–4 

thereunder,2 a proposed rule change to 

amend its CDS Clearing Rule Book 

(‘‘Rule Book’’) to make amendments 

relating to recovery and resolution. On 

December 5, 2023, LCH SA filed Partial 

Amendment No. 1 to the proposed rule 

change to make certain changes to the 

Exhibit 5 to File No. LCH SA–2023– 

008.3 The proposed rule change, as 


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5950 Federal Register / Vol. 89, No. 20 / Tuesday, January 30, 2024 / Notices 

4Securities Exchange Act Release No. 99109 (Dec. 

7, 2023), 88 FR 86389 (Dec. 13, 2023) (File No. SR– 

LCH–2023–008). 

5Capitalized terms used but not defined herein 

have the meanings specified in the LCH CDS Rule 

Book as applicable. 

6Regulation (EU) No 648/2012 of the European 

Parliament and of the Council of 4 July 2012 on 

OTC derivatives, central counterparties and trade 

reporting, Title III, Chapter 1, Section 1, Article 9. 

7 Id. 

8Article 9(14) of Regulation (EU) 2021/23 of the 

European Parliament and of the Council of 16 

December 2020 on a framework for the recovery and 

resolution of central counterparties. http://

data.europa.eu/eli/reg/2021/23/oj. 

9Regulation (EU) 2021/23 of the European 

Parliament and of the Council of 16 December 2020 

on a framework for the recovery and resolution of 

central counterparties, Article 9(14). http://

data.europa.eu/eli/reg/2021/23/oj. 

10Commission Delegated Regulation (EU) 2023/ 

840 of 25 November 2022 supplementing 

Regulation (EU) 2021/23 of the European 

Parliament and of the Council with regard to 

regulatory technical standards specifying the 

methodology for calculation and maintenance of the 

additional amount of pre-funded dedicated own 

resources to be used in accordance with Article 

9(14) of that Regulation. http://data.europa.eu/eli/ 

reg_del/2023/840/oj. 

11Regulation (EU) 2021/23 of the European 

Parliament and of the Council of 16 December 2020 

on a framework for the recovery and resolution of 

central counterparties, Article 9(6). http://

data.europa.eu/eli/reg/2021/23/oj. 

12EMIR requires that each EU member state 

designate the competent authority responsible for, 

inter alia, supervision of CCPs established in its 

territory. See Regulation (EU) No 648/2012 of the 

European Parliament and of the Council of 4 July 

2012 on OTC derivatives, central counterparties and 

trade repositories, Title III, Chapter 2, Section 1, 

Article 22 (Competent Authority). 

13The new resource would be added as the sixth 

resource on the list, requiring LCH SA to renumber 

items (vi) and (vii) of the current list. 

modified by Partial Amendment No. 1 

(hereinafter, the ‘‘Proposed Rule 

Change’’) was published for comment in 

the Federal Register on December 13, 

2023.4 The Commission has not 

received any comments on the Proposed 

Rule Change. For the reasons discussed 

below, the Commission is approving the 

Proposed Rule Change. 

II. Description of the Proposed Rule 

Change 

LCH SA is a clearing agency that 

offers clearing of, among other things, 

credit-default swaps (‘‘CDS’’).5 LCH SA 

is registered with the Commission for 

clearing CDS that are security-based 

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

Futures Trading Commission (‘‘CFTC’’) 

for clearing CDS that are swaps. In 

addition to being registered with the 

Commission and CFTC, LCH SA is 

authorized to offer clearing services in 

the European Union pursuant to rules 

established under European Markets 

Infrastructure Regulation (‘‘EMIR’’) for 

Central Counter Parties (‘‘CCP’’). LCH 

SA is required to amend its rules to 

remain in compliance with the CCP 

Recovery and Resolution Regulation 

under EMIR.6 The goal of the CCP 

Recovery and Resolution Regulation is 

to ensure that both CCPs and national 

authorities in the European Union have 

the means to act decisively in a crisis 

scenario. LCH SA is proposing to amend 

its Rule Book to comply with Article 

9(6) and Article 9(14) of the CCP 

Recovery and Resolution Regulation.7

The Proposed Rule Change would 

amend Title I, Title II, Title IV, and 

Appendix 1 of the Rule Book. 

Article 9(14) of the CCP Recovery and 

Resolution Regulation requires that, 

following a default event in respect of 

a clearing member, each CCP shall use 

an additional amount of its pre-funded, 

dedicated own resources (the ‘‘second 

skin-in-the-game’’) prior to the 

requirement of non-defaulting clearing 

members to make a contribution in cash 

to the CCP amounting to at least each 

clearing member’s contribution to the 

default fund. This second skin-in-thegame is required in addition to the 

prefunded resources required in 

accordance with EMIR (the ‘‘first skinin-the-game’’),8 which will be used by 

the CCP before the use of each nondefaulting clearing member’s initial 

contribution to the default fund.9 On 

November 25, 2022, the European 

Commission adopted a delegated act 

specifying the methodology for 

calculation and maintenance of the 

second skin-in-the-game to be used in 

accordance with Article 9(14) of the 

CCP Recovery and Resolution 

Regulation (the ‘‘Commission-Delegated 

Regulation’’).10 Separately, Article 9(6) 

of the CCP Recovery and Resolution 

Regulation requires that CCPs provide 

in their rules that they may deviate from 

their recovery plan measures and, in 

such circumstances, they shall notify 

their competent authority designated in 

accordance with EMIR.11

A. Defined Terms 

Title I of LCH SA’s Rule Book 

addresses general provisions and legal 

framework, including a set of defined 

terms in Chapter 1. LCH SA proposes to 

add two new defined terms to Chapter 

1. First, LCH SA would add the term 

‘‘CCP Recovery and Resolution 

Regulation,’’ which would be defined as 

Regulation (EU) 2021/23 of the 

European Parliament and of the Council 

of 16 December 2020 on a framework for 

the recovery and resolution of central 

counterparties. Second, LCH SA would 

add the term ‘‘ACPR,’’ which would be 

defined as the Autorite ́ de Controˆle 

Prudentiel et de Re ́solution and any 

successor organization. The ACPR is 

one of LCH SA’s national competent 

authorities.12 LCH SA also proposes to 

replace each reference to Autorite ́ de 

Controˆle Prudentiel et de Re ́solution in 

the Rule Book with the new defined 

term ACPR. 

B. Recovery Plan 

Title I of LCH SA’s Rule Book 

includes provisions related to 

membership in LCH SA, including 

terms related to the suspension and 

termination of membership in Chapter 4 

of Title II. LCH SA proposes to add a 

new section 2.4.4 to Chapter 4 that 

pertains specifically to recovery. LCH 

SA maintains a recovery plan. The 

recovery plan includes certain 

quantitative and qualitative indicators 

to identify the circumstances under 

which LCH SA may take specific 

measures, which are also specified in 

the recovery plan, in the case of a 

default or non-default event. The goal of 

such measures is the restoration of LCH 

SA’s financial resources so it can 

continue providing critical functions in 

all relevant scenarios. As required by 

Article 9(6), proposed Article 2.4.4 

would provide for an additional 

scenario in which LCH SA either takes 

measures provided for in its recovery 

plan despite the fact that the relevant 

indicators have not been met, or refrains 

from taking measures provided for in 

the recovery plan despite the fact that 

the relevant indicators have been met. 

In either event, the proposed rule 

change would require any such proposal 

to be submitted to the LCH SA board of 

directors for approval, and LCH to 

submit to the ACPR without delay any 

subsequent decision taken by the board 

of directors. 

C. Default Waterfall 

Title IV of LCH SA’s Rule Book 

includes provisions related to risk 

management, including terms related to 

events of default in Chapter 3 of Title 

IV. LCH SA proposes to amend the 

default waterfall provisions in Article 

4.3.3.1 of Chapter 3. Article 4.3.3.1 

defines the waterfall of resources that 

LCH SA would apply to cover losses 

arising out of a member default. LCH SA 

proposes to add LCH SA’s second skinin-the-game as a new loss mitigation 

resource to its default waterfall.13 The 

second skin-in-the-game would be 

applied immediately before the 

collateral deposited by the nondefaulting clearing members. The 

proposed amendment to the waterfall 

provisions will also provide that, in 

accordance with Article 9(14) of the 

CCP Recovery and Resolution 


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Federal Register / Vol. 89, No. 20 / Tuesday, January 30, 2024 / Notices 5951 

14LCH SA also proposes conforming edits in 

Section 7 of Appendix 1 to the Rule Book, which 

deals with loss distributions in the context of the 

CDS default management process. Specifically, LCH 

SA proposes to add a reference in Section 7 of the 

appendix to section 4.3.3.1 as well as language 

consistent with the amended language of 4.3.3.1. 

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

16 15 U.S.C. 78q–1(b)(3)(F). 

17 17 CFR 240.17Ad–22(e)(2). 

18 15 U.S.C. 78q–1(b)(3)(F). 

19 15 U.S.C. 78q–1(b)(3)(F). 

20Securities Exchange Act Release No. 78961 

(Sep. 28, 2016), 81 FR 70786, 70806 (Oct. 13, 2016) 

(S7–03–14) (‘‘Covered Clearing Agency Standards’’). 

21 15 U.S.C. 78q–1(b)(3)(F). 

22 17 CFR 240.17Ad–22(e)(2)(iii). 

23Covered Clearing Agency Standards, 81 FR at 

70806. 

24Securities Exchange Act Release No. 78961 

(Sep. 28, 2016), 81 FR 70786, 70806 (Oct. 13, 2016) 

(S7–03–14) (‘‘Covered Clearing Agency Standards’’). 

25 17 CFR 240.17Ad–22(e)(2). 

26 15 U.S.C. 78q–1(b)(3)(F). 

27 17 CFR 240.17Ad–22(e)(2). 

28 In approving the Proposed Rule Change, the 

Commission considered the proposal’s impacts on 

efficiency, competition, and capital formation. 15 

U.S.C. 78c(f). 

29 17 CFR 200.30–3(a)(12). 

Regulation and Article 1 of the 

Commission-Delegated Regulation, the 

LCH SA additional dedicated own 

resources, as determined from time to 

time, will be (a) up to the amount of 

such dedicated own resources allocated 

to the CDS Default Fund in proportion 

to the size of the CDS Default Fund; and 

(b) in the case of an Event of Default 

occurring after a previous Event of 

Default, but before LCH SA has 

reinstated such dedicated own resources 

in accordance with Article 3(2) of the 

Commission Delegated Regulation, up to 

the residual amount of such dedicated 

own resources in the CDS Default Fund. 

In the penultimate paragraph of 

Article 4.3.3.1, LCH SA proposes to 

clarify that the LCH SA second skin-inthe-game could be up to the amount of 

LCH SA’s own resources allocated to the 

CDS Default Fund.14

III. Discussion and Commission 

Findings 

Section 19(b)(2)(C) of the Act requires 

the Commission to approve a proposed 

rule change of a self-regulatory 

organization if it finds that the proposed 

rule change is consistent with the 

requirements of the Act and the rules 

and regulations thereunder applicable to 

the organization.15 For the reasons given 

below, the Proposed Rule Change is 

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

the Act 16 and Rule 17Ad–22(e)(2) 17

thereunder. 

A. Consistency With Section 

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

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

requires, among other things, that the 

rules of LCH SA be designed to assure 

the safeguarding of securities and funds 

which are in the custody or control of 

LCH SA or for which it is responsible.18

As discussed in more detail below, the 

Proposed Rule Change is consistent 

with Section 17A(b)(3)(F) of the Act.19

The Commission continues to regard 

skin-in-the-game as a potential tool to 

align the various incentives of a covered 

clearing agency’s stakeholders, 

including management and clearing 

members.20 LCH SA proposes to add a 

second skin-in-the-game as a resource to 

be used to cover the losses resulting 

from the implementation of the CDS 

Default Management Process before the 

collateral deposited by the nondefaulting clearing members as an 

additional contribution to the CDS 

Default Fund. Adding a second skin-inthe-game resource would create 

additional incentive for LCH SA to 

maintain the appropriate amount of 

resources to manage clearing member 

default because failure to do so would 

result in a direct cost to LCH SA. 

Creating additional incentive for LCH 

SA to maintain an appropriate amount 

of resources, in turn, could reduce the 

potential losses charged to the CDS 

Default Fund contributions of nondefaulting clearing members in the 

event of a clearing member default, 

which in turn would help assure the 

safeguarding of the CDS Default Fund 

contributions of non-defaulting clearing 

members. 

As discussed above, LCH SA proposes 

to change its Rule Book so that it can 

either take measures provided for in its 

recovery plan even if relevant indicators 

have not been met, or refrain from 

taking measures provided for in the 

recovery plan even though the relevant 

indicators have been met, provided it 

obtains board approval and promptly 

notifies the ACPR of the board’s 

decision. This too would provide LCH 

SA with additional flexibility to take 

actions to safeguard funds for which it 

is responsible. 

Based on the foregoing, the 

Commission finds that the Proposed 

Rule Change is consistent with the 

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

the Act.21

B. Consistency With Rule 17Ad–22(e)(2) 

Under the Act 

Rule 17Ad–22(e)(2) under the Act 

requires that a covered clearing agency 

establish, implement, maintain, and 

enforce written policies and procedures 

reasonably designed to provide for 

governance arrangements that, among 

other things, support the public interest 

requirements of the Act.22 In adopting 

Rule 17Ad–22(e)(2), the Commission 

stated that ‘‘the proper alignment of 

incentives is an important element of a 

covered clearing agency’s risk 

management practices,’’ and noted that 

skin-in-the-game ‘‘may play a role in 

those risk management practices in 

many instances.’’ 23 And, as noted 

above, the Commission continues to 

regard skin-in-the-game as a potential 

tool to align the various incentives of a 

covered clearing agency’s stakeholders, 

including management and clearing 

members.24

As described above, LCH SA proposes 

to amend its Rule Book so that the 

second skin-in-the-game will be used to 

cover the losses resulting from the 

implementation of the CDS Default 

Management Process immediately 

before the collateral deposited by the 

non-defaulting clearing members. This 

would mean that, following a default 

event in respect of a clearing member, 

LCH SA would apply its own resources 

to mitigate losses before applying 

resources provided by non-defaulting 

clearing members. As discussed above, 

adding a second skin-in-the-game 

resource would help to create incentive 

for LCH SA to mitigate, manage, and 

maintain the appropriate amount of 

resources to manage clearing member 

default because failure to do so would 

result in a direct cost to LCH SA. Such 

mitigation of risk in the clearance and 

settlement of securities would be 

consistent with supporting the public 

interest because it helps reduce market 

disruptions. Accordingly, the 

Commission finds that that the 

Proposed Rule Change is consistent 

with Rule 17Ad–22(e)(2) under the 

Act.25

IV. Conclusion 

On the basis of the foregoing, the 

Proposed Rule Change is consistent 

with the requirements of the Act, and in 

particular, Section 17A(b)(3)(F) of the 

Act 26 and Rule 17Ad–22(e)(2) 27

thereunder. 

It is therefore ordered pursuant to 

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

proposed rule change (SR–LCH SA– 

2023–008), as modified by Partial 

Amendment No. 1, be, and hereby is, 

approved.28

For the Commission by the Division of 

Trading and Markets, pursuant to delegated 

authority.29

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–01752 Filed 1–29–24; 8:45 am] 

BILLING CODE 8011–01–P 


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