Federal Register / Vol. 89, No. 227 / Monday, November 25, 2024 / Notices 92981 

17 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Securities Exchange Act Release No. 99847 

(Mar. 22, 2024), 89 FR 21579 (Mar. 28, 2024) (File 

No. SR–LCH SA–2024–002) (‘‘Notice’’). 

4 15 U.S.C. 78s(b)(2). 

5Securities Exchange Act Release No. 100094 

(May 9, 2024), 89 FR 42515 (May 15, 2024) (File No. 

SR–LCH SA–2024–002). 

6 15 U.S.C. 78s(b)(2)(B). 

7Securities Exchange Act Release No. 100394 

(June 21, 2024), 89 FR 53685 (June 27, 2024) (File 

No. SR–LCH SA–2024–002). 

8Securities Exchange Act Release No. 101094 

(Sept. 18, 2024), 89 FR 77919 (Sept. 24, 2024) (File 

No. SR–LCH SA–2024–002). 

9Amendment No. 1 modified the Proposed Rule 

Change to require a Select Member to participate in 

competitive bidding in default auctions and 

contribute end-of-day prices should its margins 

exceed a predetermined threshold over a designated 

time. This requirement is discussed in Part II of this 

Order. It also included an Exhibit 3.3 to the filing 

showing LCH SA’s responses to an SEC request for 

information related to the Select Membership 

model. 

10Partial Amendment No. 1 fixed errors in the 

Exhibit 1A filed with Amendment No. 1 by 

replacing the Statutory Basis and Burden on 

Competition sections of the amended Exhibit 1A 

with the text of the Statutory Basis and Burden on 

Competition sections of the amended 19b–4 

narrative. 

11Securities Exchange Act Release No. 101383 

(Oct. 18, 2024), 89 FR 84972 (Oct. 24, 2024) (File 

No. SR–LCH SA–2024–002) (‘‘Amended Notice’’). 

12What We Clear, https://www.lch.com/services/ 

cdsclear/what-we-clear (last visited Sept. 27, 2024). 

13Capitalized terms not otherwise defined herein 

have the meanings assigned to them in the 

CDSClear Rule Book or CDS Clearing Procedures, as 

applicable. 

14The Rule Book defines an Affiliated Firm as 

any Affiliate or any entity that is otherwise member 

to the same institutional protection scheme (as 

defined in the CRR) as the Clearing Member. The 

CRR is defined in the Rule Book as Regulation (EU) 

No. 575/2013 and certain related regulations and 

standards. LCH SA CDS Clearing Rule Book Chapter 

1 Article 1.1.1 An institutional protection scheme 

under the CRR is a contractual or statutory liability 

arrangement that protects those institutions and in 

particular ensures their liquidity and solvency to 

avoid bankruptcy where necessary. Regulation (EU) 

No 575/2013 of the European Parliament and of the 

Council of 26 June 2013 on prudential requirements 

for credit institutions and investment firms and 

amending Regulation (EU) No 648/2012, Article 

113(7), available at https://eur-lex.europa.eu/legalcontent/EN/TXT/PDF/?uri=CELEX:32013R0575. 

15Notice, 89 FR at 21579. 

16 Id. at 21581. 

17Notice, 89 FR at 21579, 81. 

18Select Members originally were not allowed to 

offer client clearing services. See LCH SA, Self 

Certification Letter, Select Membership, available 

at, https://www.cftc.gov/sites/default/files/filings/ 

orgrules/16/07/rule070816lchsadco001.pdf. In 

2019, the Commission approved amendments to the 

Rule Book and Procedures to allow Select Members 

to provide client clearing services to Affiliated 

Firms. See Securities Exchange Act Release No. 

86376 (July 15, 2019), 84 FR 34955, 34957 (July 19, 

2019) (File No. SR–LCH SA–2019–003). LCH SA 

proposed these to allow client clearing limited in 

this manner because a Select Member requested the 

ability to offer client clearing to an affiliate. LCH SA 

provided background and analysis related to the 

Select Membership model in confidential Exhibit 

3.3 to the Proposed Rule Change, which LCH SA 

added to the Proposed Rule change with 

Amendment No. 1. 

19Notice, 89 FR at 21581. 

20Currently, Select Members and General 

Members must nominate representatives for the 

CDS Default Management Committee and CDS 

Default Management Group because both Select 

Members and General Members currently must 

participate in auctions to some extent. Notice, 89 

FR at 21581; LCH SA provided background and 

analysis related to the Select Membership model in 

confidential Exhibit 3.3 to the Proposed Rule 

Change, which LCH SA added to the Proposed Rule 

change with Amendment No. 1. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.17

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–27478 Filed 11–22–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–101654; File No. SR–LCH 

SA–2024–002] 

Self-Regulatory Organizations; LCH 

SA; Order Granting Accelerated 

Approval of Proposed Rule Change, as 

Modified by Amendment No. 1 and 

Partial Amendment No. 1, Relating to 

the CDSClear Select Membership 

Model 

November 19, 2024. 

I. Introduction 

On March 13, 2024, Banque Centrale 

de Compensation, which conducts 

business under the name LCH SA (‘‘LCH 

SA’’), filed with the Securities and 

Exchange Commission (‘‘Commission’’), 

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

Securities Exchange Act of 1934 

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

proposed rule change (the ‘‘Proposed 

Rule Change’’) to amend its CDS 

Clearing Rule Book (the ‘‘Rule Book’’) 

and CDS Clearing Procedures 

(‘‘Procedures’’). The Proposed Rule 

Change was published for comment in 

the Federal Register on March 28, 

2024.3

On May 9, 2024, pursuant to Section 

19(b)(2) of the Exchange Act,4 the 

Commission designated a longer period 

within which to approve, disapprove, or 

institute proceedings to determine 

whether to approve or disapprove the 

Proposed Rule Change, until June 26, 

2024.5 On June 21, 2024, the 

Commission instituted proceedings, 

pursuant to Section 19(b)(2)(B) of the 

Exchange Act,6 to determine whether to 

approve or disapprove the Proposed 

Rule Change.7 On September 18, 2024, 

the Commission designated a longer 

period for commission action on 

proceedings to determine whether to 

approve or disapprove the Proposed 

Rule Change, until November 23, 2024.8

On October 11, 2024, LCH SA filed 

Amendment No. 1 to the Proposed Rule 

Change.9 On October 17, 2024, LCH SA 

filed Partial Amendment No. 1 to the 

Proposed Rule Change.10 Notice of 

Amendment No.1 and Partial 

Amendment No. 1 were published in 

the Federal Register on October 24, 

2024.11 The Commission has not 

received any comments on the Proposed 

Rule Change, as modified by 

Amendment No. 1 and Partial 

Amendment 1. For the reasons 

discussed below, the Commission is 

approving the Proposed Rule Change, as 

modified by Amendment No. 1 and 

Partial Amendment No. 1 (hereinafter 

defined as ‘‘Proposed Rule Change’’) on 

an accelerated basis. 

II. Description of the Proposed Rule 

Change 

LCH SA is a clearing agency 

registered with the Commission. 

Through its CDSClear business unit, 

LCH SA provides central counterparty 

services for security-based swaps, 

including credit default swaps, and 

options on credit default swaps.12 LCH 

SA provides these central counterparty 

services to its Clearing Members.13

Some of these Clearing Members 

provide clearing services for clients. 

LCH SA has two different types of 

Clearing Members, General Members 

and Select Members, with different 

obligations to LCH SA. General 

Members must participate in 

competitive bidding for auction 

packages, must submit prices to LCH 

SA, and may provide client clearing 

services to Affiliated Firms 14 and nonAffiliated Firms.15 General Members 

also must nominate representatives for 

the CDS Default Management 

Committee and CDS Default 

Management Group.16

Select Members, on the other hand, 

must participate in competitive bidding 

only for a subset of Auction Packages 

and may opt out of submitting prices.17

Select Members also may provide client 

clearing services,18 but only for 

Affiliated Firms. Finally, while Select 

Members also must nominate 

representatives for the CDS Default 

Management Committee and CDS 

Default Management Group,19 as noted, 

their participation in competitive 

bidding is limited to a subset of Auction 

Packages.20

The obligations of General Members 

and Select Members differ because LCH 

SA designed the two membership 

categories with different potential 

members in mind. LCH SA created the 


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21LCH SA, Self Certification Letter, Select 

Membership, available at, https://www.cftc.gov/ 

sites/default/files/filings/orgrules/16/07/ 

rule070816lchsadco001.pdf. 

22Securities Exchange Act Release No. 82076 

(Nov. 14, 2017), 82 FR 55139, 55140 (Nov. 20, 2017) 

(File No. SR–LCH SA–2017–008); Notice, 89 FR at 

21583. 

23LCH SA provided background and analysis 

related to the Select Membership model in 

confidential Exhibit 3.3 to the Proposed Rule 

Change, which LCH SA added to the Proposed Rule 

change with Amendment No. 1. 

24LCH SA provided background and analysis 

related to the Select Membership model in 

confidential Exhibit 3.3 to the Proposed Rule 

Change, which LCH SA added to the Proposed Rule 

change with Amendment No. 1. 

25LCH SA provided background and analysis 

related to the Select Membership model in 

confidential Exhibit 3.3 to the Proposed Rule 

Change, which LCH SA added to the Proposed Rule 

change with Amendment No. 1. 

26Notice, 89 FR at 21579. 

27 Id. Despite these changes, Select Members must 

still satisfy the membership requirements found in 

Section 2.2.1 of the LCH SA CDS Clearing Rule 

Book, the same as General Members. Pursuant to 

Section 2.2.1, Select Members must, among other 

things, comply with applicable law, be subject to 

supervision by competent regulatory authorities, 

meet minimum capital requirements, and satisfy a 

credit risk assessment. See LCH SA CDS Clearing 

Rule Book, Section 2.2.1. 

28Notice, 89 FR at 21579. 

29 Id. at 21580. 

30 Id. 

31 Id. 

32The Rule Book indicates that a Person shall 

belong to the same Financial Group as (i) any entity 

controlled, directly or indirectly by the Person; (ii) 

any entity that controls, directly or indirectly the 

Person; or (iii) any entity directly or indirectly 

under common control with the Person. LCH SA 

CDS Clearing Rule Book, Chapter 1 Article 1.1.1. 

Currently, CDSClear Financial Groups include 

anywhere from 1 to 4 Clearing Members. Member 

Search, https://www.lseg.com/en/post-trade/ 

clearing/membership/member-search#t-sa (last 

visited Oct. 25, 2024). 

33As described below, the Proposed Rule Change 

would require Select Member participation in 

Competitive Bidding and submission of Market 

Data when the Group Total Margin Percentage for 

the Select Member’s Financial Group exceeds the 

Participation Threshold for sixty consecutive 

clearing days. The Participation Threshold is the 

percentage which is equal to the lower of 5% and 

the sixth largest Group Total Margin Percentage 

among all the Group Total Margin Percentages 

calculated in respect of each Financial Group to 

which one or more Clearing Members belong. As 

noted above, General Members must participate in 

Competitive Bidding and submit Market Data. 

34LCH SA also proposes changes to correct crossreferences, grammar, and typographical errors, and 

provide additional clarification. 

35The Rule Book defines a CCM as any legal 

entity admitted as a Clearing Member in accordance 

with the CDS Clearing Rules at LCH SA and a party 

to the CDS Admission Agreement, including 

General Members and Select Members. LCH SA 

CDS Clearing Rule Book Chapter 1 Article 1.1.1. 

36The Rule Book defines FCM/BD Clearing 

Members as any FCM, BD or legal entity that is both 

FCM and BD that has been admitted as a clearing 

member in accordance with the CDS Clearing Rules 

and is a party to the CDS Admission Agreement and 

which has not elected to become a CCM, provided 

that if such FCM/BD Clearing Member wishes to 

provide CDS Client Clearing Services described in 

Title VI, it shall either (i) be a General Member or 

(ii) provide such CDS Client Clearing Services to its 

Select Member tier in 2016 to offer 

CDSClear direct membership to 

institutions that met the membership 

criteria, but did not want to be direct 

members due to the Competitive 

Bidding and price contribution 

obligations of such members.21 These 

institutions tend to be price takers with 

smaller portfolios.22 They prefer 

avoiding Competitive Bidding as 

General Members because they may not 

have the risk-taking capabilities to 

manage positions that they do not 

actively trade but may win in an 

auction.23 Similarly, they prefer 

avoiding price contribution as General 

Members because they may only 

actively transact in a limited set of 

products, thereby making it difficult to 

provide data for all of their open 

positions.24 LCH SA views price 

contribution as less critical for these 

institutions because, as price takers, any 

prices the Select Members might submit 

to LCH SA likely would have already 

been provided to LCH SA by CDSClear 

General Members.25

Some prospective Clearing Members 

may wish to provide clearing services to 

non-affiliated firms but they may not 

have the capacity to participate in 

Competitive Bidding or submit Market 

Data.26 In order to allow prospective 

Clearing Members that do not have the 

capacity to participate in Competitive 

Bidding or submit Market Data to 

provide clearing services to nonaffiliated firms, without becoming 

General Members, LCH SA proposes 

changes to adjust those requirements for 

Select Members, and make other related 

changes.27

Although these changes will allow 

some Select Members to clear for nonaffiliated firms without participating in 

Competitive Bidding or submitting 

Market Data, these changes will not 

necessarily undermine Competitive 

Bidding or LCH SA’s collection of 

Market Data. This is because Select 

Membership will not be overall more 

favorable than General Membership due 

to the Proposed Rule Change. 

Specifically, while Select Members will 

have fewer obligations than General 

Members and still be able to clear for 

clients, LCH SA’s fee grid and Risk 

Management Framework, which the 

Proposed Rule Change does not affect, 

make client clearing cheaper for General 

than Select Members, as described 

below. 

Specifically, with respect to the fee 

grid, currently only General Members 

may subscribe to the unlimited tariff, 

which allows General Members to clear 

an unlimited number of trades for their 

own account for an annual fixed fee.28

Further, General Members that pay a 

variable tariff will have lower fixed and 

variable fees than Select Members.29

The Proposed Rule Change would not 

alter this arrangement.30

With respect to the Risk Management 

Framework, General Members who clear 

for clients may be able to give their 

clients the same liquidity margin as 

other General Members. Select 

Members, on the other hand, may incur 

a higher liquidity margin, including a 

liquidity concentration charge, for large 

positions, including large client 

positions.31 The Proposed Rule Change 

would not alter this liquidity margin or 

otherwise amend the Risk Management 

Framework. 

To further ensure that a sufficient 

number of Clearing Members participate 

in Competitive Bidding and submit 

Market Data, as discussed below, the 

Proposed Rule Change would guarantee 

that at least six Clearing Member 

Financial Groups 32 participate in 

default auctions and submit Market Data 

by requiring a Select Member to 

participate in those processes if the 

margins of its Financial Group exceed a 

predetermined threshold over a 

designated time.33

LCH SA’s proposed changes to Select 

Membership can be grouped into five 

categories.34 The first category would 

allow Select Members to provide client 

clearing services to non-affiliated firms. 

The second and third categories would 

relate to Select Members’ ability to elect 

to participate in Competitive Bidding 

and submission of end-of-day prices. 

The fourth category would address 

mandatory participation in Competitive 

Bidding and submission of end-of-day 

prices by Select Members. The fifth 

category would create a new form 

through which Select Members may 

make certain elections, including to 

participate in Competitive Bidding and 

submit Market Data. 

A. Non-Affiliated Firm Clearing for 

Select Members 

As noted above, the Rule Book does 

not allow Select Members to provide 

CDS Client Clearing Services to nonaffiliated firms. Current Article 5.1.1.2 

of the Rule Book addresses conditions 

upon which CDS Client Clearing 

Services may be provided by a 

‘‘CCM’’ 35 to its CCM Clients. Article 

5.1.1.2(i) indicates that if a CCM is a 

Select Member, it shall not provide CDS 

Client Clearing Services to any CCM 

Client other than its Affiliated Firms. 

Similarly, Article 6.1.1.2 of the Rule 

Book addresses conditions upon which 

FCM/BD Clearing Members 36 may 


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Affiliated Firms only. LCH SA CDS Clearing Rule 

Book Chapter 1 Article 1.1.1. 

37Notice, 89 FR at 21580. 

38 Id. 

39 Id. 

40 Id. at 21580–81. 

41 Id. 

42The Rule Book defines Affiliate as any entity 

that controls, directly or indirectly, the Clearing 

Member, any entity controlled, directly or 

indirectly, by the Clearing Member or any entity 

directly or indirectly under common control with 

such Clearing Member. Affiliated Firm is defined as 

any Affiliate or any entity that is otherwise member 

to the same institutional protection scheme (as 

defined in the CRR as the Clearing Member). LCH 

SA CDS Clearing Rule Book Chapter 1 Article 1.1.1. 

43Article 6.1.1.1 provides that an FCM/BD 

Clearing Member may not enter into Cleared 

Transactions for the account of an Affiliate, unless 

such FCM/BD Clearing Member first provides LCH 

SA with an opinion of counsel, in form and content 

acceptable to LCH SA, confirming that entry into 

such Cleared Transactions would not be contrary to 

Applicable Law. The proposed Article 6.1.1.2 

would provide that an FCM/BD Clearing Member 

may provide CDS Clearing Services to a Client or, 

if permitted pursuant to Article 6.1.1.1 an Affiliate, 

rather than an Affiliated Firm, on any terms and 

conditions mutually agreed to by it and such 

Person. 

44Notice, 89 FR at 21580. 

45A Price Contribution Participant is a Select 

Member that has opted for submitting Market Data 

in accordance with Section 5 of the Procedures or 

each General Member, or in each case, its Price 

Contribution Delegate. LCH SA CDS Clearing Rule 

Book Chapter 1 Article 1.1.1. 

46Specifically, where there is an Event of Default 

with respect to a Clearing Member, LCH SA will 

auction ‘‘Auction Packages.’’ LCH SA CDS Clearing 

Rule Book, Appendix 1, Clause 2.1. An Auction 

Package is defined as a portfolio of Auction 

Transactions reflecting one or more Cleared 

Transactions registered in the name of the 

Defaulting Clearing Member, together with any 

connected hedging trades that have been concluded 

by LCH SA through Hedging. LCH SA CDS Clearing 

Rule Book, Appendix 1, Clause 1.1. 

47These exceptions are described in Clause 5.4.1 

of the CDS Default Management Process in the Rule 

Book. 

provide CDS Clearing Services. Article 

6.1.1.2(i) states that if an FCM/BD 

Clearing Member is a Select Member, it 

shall not provide CDS Client Clearing 

Services to any FCM/BD Client other 

than its Affiliated Firms. LCH SA 

proposes deleting Articles 5.1.1.2(i) and 

6.1.1.2(i), since these provisions limit 

the entities to which Select Members 

may provide client clearing services to 

Affiliated Firms.37

To clarify that Select Members may 

offer CDS Client Clearing Services to 

any client, including non-affiliates, LCH 

SA proposes adjusting certain defined 

terms, including the definition of Select 

Member.38 Currently, the Rule Book 

defines Select Member as a CCM or 

FCM/BD Clearing Member that does not 

provide CDS Client Clearing Services to 

clients other than Affiliated Firms and 

has been admitted by LCH SA as a 

Select Member in accordance with 

Section 1 of the Procedures. LCH SA 

proposes deleting the text from the 

definition, noting that Select Members 

do not provide CDS Client Clearing 

Services to clients other than Affiliated 

Firms. LCH SA also proposes deleting 

certain text from the Rule Book 

highlighting the current status quo—that 

General Members may provide client 

clearing services to non-affiliated firms, 

while Select Members may not do so— 

in the definitions of CCM and FCM/BD 

Clearing Member. 

Under LCH SA’s proposal to allow 

Select Members to provide CDS Client 

Clearing Services to Clients other than 

Affiliated Firms, there is no need to 

define the term Affiliated Firm. This 

term was only used with respect to the 

current Select Member model.39 As 

such, LCH SA proposes deleting the 

defined term Affiliated Firm from the 

Rule Book. 

Similarly, LCH SA proposes updating 

certain references that are no longer 

necessary or that can no longer exist 

because of its proposal to permit Select 

Members to provide clearing services to 

any client and the deletion of the 

defined term Affiliated Firm.40 LCH SA 

accordingly proposes deleting 

references to Affiliated Firms in Article 

5.1.1.1 of the Rule Book and in Article 

4.2.7.2 of the Rule Book.41 As noted 

above, in 2019, LCH SA made several 

changes to its Rule Book to allow and 

account for Select Members providing 

client clearing services to Affiliated 

Firms. The proposed changes to Articles 

5.1.1.1 and 4.2.7.2 eliminate these 

changes and work to make those 

provisions consistent with LCH SA’s 

new requirements for Select Members. 

Separately, in some provisions of its 

Rule Book, LCH SA proposes replacing 

the term Affiliated Firm with the term 

Affiliate 42 rather than deleting it 

entirely because in certain places, LCH 

SA refers to Affiliates of a Clearing 

Member. Specifically, LCH SA would 

make this change in the definitions of 

CCM Indirect Gross Segregated Account 

Client, CCM Indirect Net Segregated 

Account Client, CCM Individual 

Segregated Account Client, and FCM/ 

BD Client as well as in Article 6.1.1.2. 

The proposed changes to the definitions 

for CCM Indirect Gross Segregated 

Account client, CCM Indirect Net 

Segregated Account Client, and CCM 

Individual Segregated Account Client 

reverse 2019 changes made to account 

for Select Members ability to clear for 

Affiliated Firms. The proposed change 

to Article 6.1.1.2’s introduction makes 

that provision consistent with Article 

6.1.1.1.43 Further, the changes to Article 

6.1.1.2 in general account for the fact 

that, after changes to its Select Member 

tier, without the need for the broader 

term Affiliated Firm, LCH SA can revert 

back to the use of the term Affiliate. 

Finally, given the proposal to allow 

Select Members to clear for nonaffiliated firms as General Members can, 

LCH SA proposes changes to apply 

certain existing requirements to both 

General Members and Select Members 

without distinguishing between the 

two.44 In Articles 2.2.1.1(iv) and 

2.2.1.1(v) of the Rule Book, LCH SA 

proposes changes that would make 

certain conditions to becoming a 

Clearing Member applicable to all 

Applicants wishing to provide CDS 

Client Clearing Services, instead of 

Applicants wishing to be admitted as a 

General Member or as a Select Member 

providing CDS Client Clearing Services 

to Affiliated Firms. Similarly, LCH SA 

proposes changes to Article 2.2.2.1(iv) 

of the Rule Book that would make 

certain continuing obligations of 

Clearing Members applicable to Clearing 

Members which have elected to provide 

CDS Client Clearing Services generally, 

rather than only to General or Select 

Members that have elected to provide 

CDS Client Clearing Services to 

Affiliated Firms. LCH SA also proposes 

deleting text from Article 4.2.7.2 of the 

Rule Book limiting Clearing Members 

authorized to provide Markit LCH 

Settlement Prices under certain 

conditions to General Members, or 

Select Members that opt to be Price 

Contribution Participants and that 

provide CDS Client Clearing Services to 

Affiliated Firms.45 After making this 

change, all Clearing Members, as 

opposed to just a subset of Clearing 

Members, would be authorized to 

provide Markit LCH Settlement Prices to 

certain clients under certain conditions. 

B. Participation in Competitive Bidding 

In the event of a Clearing Member 

default, LCH SA shall auction off the 

defaulting Clearing Member’s 

positions.46 Currently, the LCH SA CDS 

Default Management Process requires all 

Non-Defaulting Clearing Members, 

including Select Members, to participate 

in Competitive Bidding during such 

auctions, with a few exceptions.47 For 

example, a Select Member does not 

need to bid for any Auction Package if 

that Auction Package contains a product 

that the Select Member does not transact 


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48Specifically, a Select Member does not need to 

engage in Competitive Bidding for Auction 

Packages containing any Cleared Transaction that 

does not belong to any Product Family as set out 

in that Select Member’s Product Family Form. The 

Rule Book defines Product Family as each category 

of CDS or Index Swaption for which LCH SA 

provides CDS Clearing Services and that may be 

selected by a Select Member in its Product Family 

Form. LCH SA CDS Clearing Rule Book, Chapter 1 

Article 1.1.1. 

49The Rule Book defines Product Family Form as, 

in respect of a Select Member, the form referencing 

the Product Families that a Select Member intends 

to clear through LCH SA, as amended from time to 

time in accordance with Section 5 of the 

Procedures. Id. 

50Notice, 89 FR at 21579. Specifically, LCH SA 

notes that Select Members have historically 

required assistance managing default files and have 

routinely requested assistance addressing questions 

during fire drill exercises. Id. at 21582 n19. 

51LCH SA provided background and analysis 

related to past firedrill bidding in confidential 

Exhibit 3.2 and background and analysis related to 

the Select Membership model in confidential 

Exhibit 3.3 to the Proposed Rule Change. 

Confidential Exhibit 3.2 was a part of the originally 

filed Proposed Rule Change. Confidential Exhibit 

3.3 was added to the Proposed Rule Change with 

Amendment No. 1. 

52As discussed In Section D below, LCH SA 

recognizes that changes to its membership tiers 

require that LCH SA maintains sufficient 

participation in Competitive Bidding and the price 

contribution process. See Amended Notice, 89 FR 

at 84975. 

53As is noted in footnote 59, the Proposed Rule 

Change would delete current Article 2.2.0.4. Thus, 

current Article 2.2.0.5 and proposed Article 2.2.0.4 

are the same provision. 

54As noted above, under the LCH SA’s proposal, 

a Select Member that voluntarily chooses to 

participate in Competitive Bidding must abide by 

its obligations under Article 2.2.1.1(xi) and elect to 

participate in Competitive Bidding in order to opt 

into Competitive Bidding. 

55Associated entities under Article 2.2.1.1(xi) 

would include affiliated Clearing Members or 

alternatively a non-clearing member Affiliate that 

clears through the Clearing Member. 

56LCH SA CDS Clearing Rule Book Chapter 2 

Article 2.2.0.4. 

57Notice, 89 FR at 21580. 

58 Id. 

59LCH SA proposes deletion of this entire 

provision. This provision discusses the use of the 

Product Family Form and updating the Product 

Family Form. From this point forward references to 

Article 2.2.0.4 will be to the proposed Article 

2.2.0.4/current Article 2.2.0.5 of the Rule Book. 

60LCH SA proposes deletion of text noting that 

LCH SA will inform relevant Clearing Members of, 

in respect of a Select Member, any cleared 

Transaction, as a result of the novation process 

pursuant to Article 3.1.6.1, that does not belong to 

any of the Product Families indicated in the 

Product Family Form of that Select Member. 

61LCH SA proposes the deletion of text in this 

provision indicating that a Non-Defaulting Clearing 

Member is not required to participate in 

Competitive Bidding for an Auction Package 

containing any Cleared Transaction that does not 

belong to any Product Family as set out in that 

Select Member’s Product Family Form in force on 

the Business Day immediately preceding the CDS 

Post Default Period. 

62LCH SA proposes the deletion of text in this 

provision highlighting circumstances under which 

and how a Product Family Form will be updated. 

With the deletion of this text there is also no need 

for the references to General Members and Select 

Members in Clause 6.1.2(ii)(a) which acknowledge 

in,48 as set out in that Select Member’s 

Product Family Form.49

Even with this exception, LCH SA has 

found that some Select Members may 

not have the operational capacity to 

participate in default auctions.50 LCH 

SA believes that it does not need certain 

Select Members to participate in 

Competitive Bidding because Select 

Members have had minimal impact on 

winning bids during previously 

conducted fire drills.51 Accordingly, 

LCH SA is now proposing to make 

participation in Competitive Bidding 

optional for Select Members, subject to 

a minimum participation requirement, 

as discussed below.52

Specifically, LCH SA proposes to 

revise current Article 2.2.0.5 of the Rule 

Book to alter which Select Members are 

required to participate in Competitive 

Bidding. Further, these revisions will 

clarify that a Select Member, under 

circumstances where it is not required 

to participate in Competitive Bidding as 

described in Section D below, may opt 

to participate in Competitive Bidding 

pursuant to Clause 5 of the CDS Default 

Management Process, subject to Article 

2.2.1.1(xi) of the Rule Book.53 Related to 

this change, LCH SA will also clarify 

that a Select Member that elects, or is 

required, to participate in Competitive 

Bidding will be subject to the provisions 

of the CDS Clearing Documentation that 

apply to any Non-Defaulting Clearing 

Member that must participate in 

Competitive Bidding for each Auction 

Package, as a General Member will be. 

To further effectuate this change, LCH 

SA also proposes revisions to Clause 

5.4.1(ii) of the CDS Default Management 

Process, which is found in Appendix 1 

to the Rule Book. Clause 5.4.1 identifies 

exceptions to the requirement that all 

Non-Defaulting Clearing Members 

participate in Competitive Bidding. The 

Proposed Rule Change would add an 

exception from the Competitive Bidding 

requirement for Select Members that are 

not required to participate in 

Competitive Bidding under proposed 

Article 2.2.0.4, and that also have not 

elected to participate in Competitive 

Bidding by following the requirements 

of proposed Article 2.2.0.4 within one 

hour of the declaration of an Event of 

Default by LCH SA.54

LCH SA proposes to revise certain 

other provisions—specifically, those 

related to conditions on Applicants 

wishing to be admitted as Clearing 

Members—to reflect that Competitive 

Bidding will be elective for Select 

Members going forward, subject to the 

minimum participation requirement 

described below. Article 2.2.1.1(xi) of 

the Rule Book currently requires a 

Clearing Member Applicant to 

participate in the implementation of the 

CDS Default Management Process or 

demonstrate that it has an associated 

entity or an LCH Approved Outsourcing 

Agent that can successfully do so.55 It 

also requires a Clearing Member 

Applicant to participate in (and satisfy 

LCH SA’s requirements with respect to 

the carrying out of) regular fire drills 

run by LCH SA from time to time in 

accordance with the Rule Book, or 

demonstrate that it has an associated 

entity or an LCH Approved Outsourcing 

Agent that can successfully do so. The 

proposed rule change would add 

language to Article 2.2.1.1(xi) specifying 

that it applies to an Applicant seeking 

to be admitted as a General Member, or 

as a Select Member that will elect to 

participate in Competitive Bidding. 

Relatedly, the proposed rule change 

would amend Section 1.1(d) of the 

Procedures to note that an Applicant 

must accept that, during the review 

process, LCH SA is entitled to request 

that the Applicant applying to be a 

Select Member and wishing to 

participate in Competitive Bidding must 

pass LCH SA-administered tests to 

ensure that the Applicant can 

successfully participate in Competitive 

Bidding. 

Because certain Select Members will 

no longer be required to participate in 

Competitive Bidding, they also will no 

longer be required to use the Product 

Family Form. The Product Family Form 

is used by Select Members to identify 

the Product Families that a Select 

Member intends to clear through LCH 

SA.56 A form identifying the Product 

Families that a Select Member intends 

to clear through LCH SA is currently 

necessary because Select Members only 

must participate in Competitive Bidding 

for Auction Packages if the Cleared 

Transactions in the Auction Package all 

belong to Product Families set out in the 

Select Member’s Product Family 

Form.57 Under the Proposed Rule 

Change, because Select Members are no 

longer required to participate in 

Competitive Bidding, subject to the 

minimum participation requirement 

discussed below, there is no longer a 

need for Select Members to use the 

Product Family Form.58 As such, LCH 

SA proposes deleting the defined terms 

Product Family and Product Family 

Form from the Rule Book, and proposes 

deleting references to the terms Product 

Family and Product Family Form in 

Articles 2.2.0.4,59 3.1.6.2(ii),60 3.1.6.5, 

and Appendix 1 Clauses 5.4.1(ii) 61 and 

6.1 of the Rule Book.62


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Federal Register / Vol. 89, No. 227 / Monday, November 25, 2024 / Notices 92985 

the differences between Select Members and 

General Members under the current Rule Book. 

Notice, 89 FR at 21580. Thus, LCH SA proposes to 

delete references to the terms General Member and 

Select Member in Clause 6.1.2(ii)(a). 

63Notice, 89 FR at 21580. 

64LCH SA provided background and analysis 

related to the Select Membership model in 

confidential Exhibit 3.3 to the Proposed Rule 

Change, which LCH SA added to the Proposed Rule 

Change with Amendment No. 1. 

65LCH SA CDS Clearing Rule Book Appendix 1 

Clause 10.1. 

66LCH SA CDS Clearing Rule Book Appendix 1 

Clause 11.1. 

67Notice, 89 FR at 21581. 

68Price Requirement Files are files listing the 

Open Positions in respect of which Price 

Contribution Participants are required to submit 

Market Data. LCH SA CDS Clearing Procedures, 

Section 5.18.3. 

69A Trading City is the city in which a CDS or 

Index Swaption is typically traded, as published on 

the website. LCH SA CDS Clearing Rule Book 

Chapter 1 Article 1.1.1. 

70 Id. at 21579. 

71Amended Notice, 89 FR at 84975. 

For a similar reason, the Proposed 

Rule Change would delete Article 

3.1.6.8 of the Rule Book. This provision 

is no longer needed because it describes 

how LCH SA would deal with situations 

where LCH SA registers a Cleared 

Transaction, in respect of a Select 

Member, which does not belong to any 

of the Product Families indicated in the 

Select Member’s Product Family 

Form.63

Finally, because Select Members’ 

obligations with respect to Competitive 

Bidding would change and therefore, 

their perspective would provide less 

added value with respect to the design 

of LCH SA’s liquidation strategy than it 

did in the past, Select Members also 

will no longer be required to nominate 

representatives to the CDS Default 

Management Committee or Group.64

The CDS Default Management 

Committee meets at least quarterly, 

primarily to ensure continued 

preparedness for an Event of Default. 

The Default Management Committee’s 

duties include participating in regular 

fire drills in relation to the CDS Default 

Management Process, keeping under 

review the terms of reference for both 

the CDS Default Management 

Committee and the CDS Default 

Management Group, determining the 

provisions of the CDS Default 

Management Guidance Manual that will 

supplement the principles set out in the 

CDS Default Management Process, and 

assisting the members of the CDS 

Default Management Group in 

implementing the CDS Default 

Management Process.65 Appendix 1, 

Clause 10.2 of the Rule Book indicates 

that the CDS Default Management 

Committee shall consist of 

representatives nominated by each of 

the Clearing Members. 

The CDS Default Management Group 

meets as soon as reasonably practicable 

following notification by LCH SA that a 

Clearing Member is the subject of an 

Event of Default. This group assists LCH 

SA in the implementation of the CDS 

Default Management Process.66

Appendix 1, Clause 11.2.2 of the Rule 

Book notes that each Clearing Member 

is required to notify LCH SA of at least 

two representatives that can be called 

upon to participate as a member of the 

CDS Default Management Group. 

LCH SA proposes changes to current 

Article 2.2.0.5 (proposed Article 2.2.0.4) 

to give Select Members the option to 

nominate representatives to the CDS 

Default Management Committee and to 

the CDS Default Management Group. 

LCH SA proposes conforming changes 

to Appendix 1, Clauses 10.2.1 and 

11.2.2 of the Rule Book, to clarify that 

going forward Select Members may, but 

are not required to, nominate 

representatives to the Committee and 

Group. LCH SA proposes these changes 

to make Select Members’ obligations 

with respect to nominating these 

representatives consistent with the 

ability to opt out of Competitive 

Bidding.67

C. Submission of Market Data 

Unlike Competitive Bidding, under 

LCH SA’s Rule Book, participation in 

the end of day price contribution 

process is currently optional for Select 

Members. As described in Section D 

below, the Proposed Rule Change would 

require some Select Members to submit 

Market Data, while continuing to give 

other Select Members the option to 

submit Market Data. LCH SA also 

proposes two changes to Select 

Members’ price submissions, if they 

choose to do so. First, the Proposed Rule 

Change would note that Select Members 

elect to receive Price Requirement 

Files 68 for relevant Trading Cities.69

Second, LCH SA proposes a change so 

that, with respect to the Price 

Requirement Files received for relevant 

Trading Cities only, Select Members 

that elect to be Price Contribution 

Participants are bound by all obligations 

of a Price Contribution Participant as set 

out in the Rule Book and Section 5 of 

the Procedures, including the obligation 

to submit Market Data. 

As noted, Select Members already 

may opt to submit Market Data. As such, 

they have the choice to become Price 

Contribution Participants. However, 

under current Article 2.2.0.5, even when 

a Select Member elects to be a Price 

Contribution Participant it may choose 

not to submit Market Data. This differs 

from General Members, who must act as 

Price Contribution Participants and 

submit Market Data. Given that 

potential Select Members may lack the 

capacity to submit Market Data, LCH 

SA’s proposed revisions to select 

membership will still allow certain 

Select Members to choose whether they 

would like to submit Market Data.70

D. Mandatory Competitive Bidding and 

Submission of Market Data 

As part of the changes to make 

Competitive Bidding and price 

contribution optional for Select 

Members, LCH SA also will require 

certain Clearing Members to participate 

in these processes, regardless of whether 

they are General or Select Members. 

LCH SA proposes these changes to 

guarantee that it has enough 

participants for those processes.71

As noted above, Select Members 

currently must participate in 

Competitive Bidding for Auction 

Packages containing Cleared 

Transactions that belong to any Product 

Family as set out in that Select 

Member’s Product Family Form. Select 

Members also currently may choose 

whether to submit Market Data. The 

Proposed Rule Change would add text 

to proposed Article 2.2.0.4, requiring 

that Select Members submit Market Data 

for all the Trading Cities and participate 

in Competitive Bidding when the Group 

Total Margin Percentage calculated for 

its Financial Group exceeds the 

Participation Threshold for sixty 

consecutive Clearing Days. 

Additionally, LCH SA’s proposal 

provides that this obligation ends when 

the Group Total Margin Percentage 

remains one percentage point below the 

Participation Threshold for sixty 

consecutive Clearing Days. LCH SA’s 

proposed changes further indicate that if 

LCH SA reasonably believes that a 

Select Member will be required to 

participate in Competitive Bidding and 

the price contribution process under 

proposed Article 2.2.0.4, LCH SA may 

request for that Select Member to carry 

out such tests as LCH SA may 

reasonably require to assess its ability to 

participate in Competitive Bidding. 

To implement this change, LCH SA 

proposes several new defined terms for 

its Rule Book. The Participation 

Threshold for determining when a 

Select Member must participate in 

Competitive Bidding and the price 

contribution process would be defined 

as the percentage as determined by LCH 

SA, which is equal to the lower of five 

percent (5%) and the sixth largest Group 

Total Margin Percentage among all the 


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72 Id. at 84976. 

73 Id. at 21580. 

74 Id. at 21580. 

75 Id. at 21581. 

76 Id. 

Group Total Margin Percentages 

calculated in respect of each Financial 

Group to which one or more Clearing 

Members belong. LCH SA’s proposal 

would define Group Total Margin 

Percentage as, in respect of a Financial 

Group to which one or more Clearing 

Members belong and in respect of any 

Clearing Day, the ratio of its Average 

Group Total Margin divided by the 

Average CDSClear Total Margin. LCH 

SA proposes to define Average 

CDSClear Total Margin as the average 

over the last sixty Clearing Days of the 

sum of all the Margins (excluding 

Variation Margins) calculated by LCH 

SA in respect of the Account Structures 

of all the Clearing Members. The 

Proposed Rule Change would define 

Average Group Total Margin as the 

average over the last sixty Clearing Days 

of the sum of all the Margins (excluding 

Variation Margins) calculated by LCH 

SA in respect of all the Account 

Structure(s) of the Clearing Members 

belonging to the same Financial Group. 

Finally, the Proposed Rule Change 

would make a few edits to account for 

the possibility that Select Members will 

need to participate in the price 

contribution process.72 In proposed 

Article 2.2.0.4, LCH SA would delete 

language suggesting that a Select 

Member would never have any 

obligation to submit Market Data. LCH 

SA also proposes language for the 

definition of Price Contribution 

Participant, which would broaden the 

definition’s application to include 

Select Members that are required to 

submit Market Data in addition to Select 

Members that have opted to submit 

Market Data. 

In practice, this will mean that any 

Clearing Member that is part of the top 

six Financial Groups at LCH SA will be 

required to participate in Competitive 

Bidding and provide prices, even if that 

Clearing Member is a Select Member. 

E. Select Member Form 

Finally, the Proposed Rule Change 

would create a new Select Member 

Form, through which Select Members 

would make the elections described 

above. Specifically, Select Members 

would use this form to elect to 

participate in Competitive Bidding, 

submit Market Data, and nominate 

representatives to the Default 

Management Committee and Default 

Management Group. The Proposed Rule 

Change would carry out this change by 

creating a new definition for Select 

Member Form, editing certain aspects of 

its rules to note the use of the Select 

Member Form, deleting references to the 

obsolete Product Family Form, and 

establishing a process for Select 

Members to obtain and update the form. 

First, to provide a definition for this 

form, LCH SA proposes a new defined 

term.73 LCH SA’s proposal would define 

Select Member Form as the form 

referencing the elections made by a 

Select Member, in accordance with 

Article 2.2.0.4, as amended from time to 

time in accordance with Section 5 of the 

Procedures. 

Second, LCH SA proposes changes 

that would provide that Select Members 

choose certain parameters of their 

membership through the Select Member 

Form. Currently, Select Member Price 

Contribution Participants may choose to 

receive Price Requirement Files in 

accordance with the conditions set out 

in Section 1 of the Procedures. The 

Proposed Rule Change would edit 

current Article 2.2.0.5 so that it 

indicates that a Select Member shall 

notify LCH SA of its elections with 

respect to Competitive Bidding, 

submission of Market Data, and 

nomination of representatives to the 

Default Management Committee and 

Default Management Group by 

providing a duly completed and signed 

Select Member Form in the conditions 

and manner set out in Section 1 of the 

Procedures. Similarly, LCH SA proposes 

to add text to current Article 2.2.0.5 to 

explain that a Select Member may 

change these elections by providing 

LCH SA with a copy of a duly signed 

updated Select Member Form, in 

accordance with the conditions set out 

in Section 5 of the Procedures. With the 

process for opting to submit Market Data 

being described in current Article 

2.2.0.5 (proposed Article 2.2.0.4), LCH 

SA proposes clarifying the definition of 

Price Contribution Participant to 

include Select Members that have 

opted, or are required, to submit Market 

Data in accordance with Article 2.2.0.4, 

rather than Section 5 of the Procedures. 

Additionally, because there is no 

longer a need to use the Product Family 

Form, the Proposed Rule Change would 

replace references to this form and other 

references no longer needed with 

references to the new Select Member 

Form. The Proposed Rule Change would 

delete the term Product Family Form 

from Section 1.1 of the Procedures and 

replace it with the newly created term, 

Select Member Form.74 As such, an 

Applicant that wishes to be admitted as 

a Select Member shall provide LCH SA 

with the Select Member Form 

completed by the Select Member as 

opposed to the Product Family Form. 

Likewise, LCH SA proposes to edit 

Section 5.11(c) of the Procedures to 

focus on updating the Select Member 

Form rather than the Product Family 

Form. The proposal would delete 

references to the Product Family Form, 

replacing those references with the term 

Select Member Form where relevant, 

and delete references to provisions that 

focus on the Product Family Form. 

Further, instead of noting that a Select 

Member is entitled to add or remove any 

Product Family indicated in its Product 

Family Form via email in accordance 

with Article 2.2.0.4 (2.2.0.5 of the 

currently effective Rule Book), LCH SA 

proposes that the provision specify that 

a Select Member is entitled to change 

any of its election(s) by email. The 

Proposed Rule Change also replaces the 

term Product Family Form with Select 

Member Form in the Rule Book 

definition of CDS Clearing 

Documentation. 

Certain other proposed changes delete 

text that is no longer relevant due to the 

introduction of the Select Member 

Form. Specifically, because LCH SA 

proposes using the Select Member Form 

for making elections, it would delete a 

paragraph from Section 5.18.1 of the 

Procedures that describes the current 

process for choosing to receive or to 

stop receiving Price Requirement 

Files.75

Finally, LCH SA proposes to add 

additional text related to obtaining and 

updating the Select Member Form. First, 

LCH SA proposes to add language to 

Section 1.1 of the Procedures, clarifying 

that the Select Member Form is made 

available by LCH SA’s CDS Clear 

Business Development and Relationship 

Management team. LCH SA also 

proposes to add language to Section 

5.11(c) of the Procedures to note that 

updates to the Select Member Form may 

require the Select Member to provide 

LCH SA with additional information, or 

take and pass tests that LCH SA may 

require. The Proposed Rule Change 

would add text to Section 5.11(c) of the 

Procedures to clarify that, in situations 

where a Select Member elects to stop 

taking part in Competitive Bidding, the 

election is not effective until the eighth 

Clearing Day following the Clearing Day 

on which the updated Select Member 

Form is received. This would ensure 

that a Select Member will be required to 

participate in Competitive Bidding if 

there is an Event of Default with respect 

to a separate Clearing Member at the 

same time LCH SA receives the new 

Select Member Form.76 To clarify this 

point, LCH SA proposes to add a final 


khammond on DSK9W7S144PROD with NOTICES
Federal Register / Vol. 89, No. 227 / Monday, November 25, 2024 / Notices 92987 

77 15 U.S.C. 78s(b)(2)(C). 

78Rule 700(b)(3), Commission Rules of Practice, 

17 CFR 201.700(b)(3). 

79 Id. 

80 Id. 

81Susquehanna Int’l Group, LLP v. Securities and 

Exchange Commission, 866 F.3d 442, 447 (D.C. Cir. 

2017) (‘‘Susquehanna’’). 

82 15 U.S.C. 78q–1(b)(3)(F). 

83 17 CFR 240.17Ad–22(e)(13). 

84 17 CFR 240.17Ad–22(e)(18). 

85 15 U.S.C. 78q–1(b)(3)(F). 

86Notice, 89 FR at 21580. 

87For example, Select Members must still satisfy 

the membership requirements found in Section 

2.2.1 of the LCH SA CDS Clearing Rule Book, the 

same as General Members. Pursuant to Section 

2.2.1, Select Members must, among other things, 

comply with applicable law relating to their status 

as a Clearing Member and the performance of their 

obligations pursuant to the CDS Clearing 

Documentation, be subject to supervision by 

Competent Authorities, meet minimum capital 

requirements, and satisfy a credit risk assessment. 

See LCH SA CDS Clearing Rule Book, Section 2.2.1. 

88 In total, CDSClear has twenty-seven members, 

five of which are Select Members. LCH, Member 

Search, https://www.lch.com/membership/membersearch. 89LCH SA provided background and analysis 

related to the Select Membership model in 

confidential Exhibit 3.3 to the Proposed Rule 

Change, which LCH SA added to the Proposed Rule 

Change with Amendment No. 1. 90LCH SA CDS Clearing Rule Book, Appendix 1, 

Clause 2.1. 

91Notice, 89 FR at 21582. 

paragraph to Section 5.11(c) to indicate 

that, until the Select Member Form 

update is effective, the Select Member 

will continue to be subject to the 

provisions of the CDS Clearing 

Documentation applying to any NonDefaulting Clearing Member required to 

participate in Competitive Bidding for 

each Auction Package. 

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.77 Under the 

Commission’s Rules of Practice, the 

‘‘burden to demonstrate that a proposed 

rule change is consistent with the 

Exchange Act and the rules and 

regulations issued thereunder . . . is on 

the self-regulatory organization [‘SRO’] 

that proposed the rule change.’’ 78

The description of a proposed rule 

change, its purpose and operation, its 

effect, and a legal analysis of its 

consistency with applicable 

requirements must all be sufficiently 

detailed and specific to support an 

affirmative Commission finding,79 and 

any failure of an SRO to provide this 

information may result in the 

Commission not having a sufficient 

basis to make an affirmative finding that 

a proposed rule change is consistent 

with the Exchange Act and the 

applicable rules and regulations.80

Moreover, ‘‘unquestioning reliance’’ on 

an SRO’s representations in a proposed 

rule change is not sufficient to justify 

Commission approval of a proposed rule 

change.81

After carefully considering the 

Proposed Rule Change, the Commission 

finds that the Proposed Rule Change is 

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

the Act 82 and Rules 17Ad–22(e)(13) 83

and (e)(18) 84 thereunder, as described 

in detail below. 

A. Consistency With Section 

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

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

LCH SA’s rules, among other things, 

must be ‘‘designed to promote the 

prompt and accurate clearance and 

settlement of securities transactions . . . 

derivative agreements, contracts, and 

transactions . . . .’’ 85 Based on the 

Commission’s review of the record, and 

for the reasons discussed below, LCH 

SA’s changes are consistent with 

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

they may help to expand LCH SA’s 

provision of clearing services, 

contribute to the smooth operation of 

LCH SA’s default auctions, help LCH 

SA better contain losses, and clarify the 

process Select Members use to make 

elections. 

The Proposed Rule Change would 

potentially improve access to clearing 

for clients. Currently, Select Members 

may only provide clearing services to 

Affiliated Firms. The Proposed Rule 

Change would allow Select Members to 

provide clearing services to nonaffiliated firms as well. Assuming Select 

Members begin offering clearing 

services to clients that are not Affiliated 

Firms, this change could expand the 

clearing services available to firms that 

seek to clear transactions as clients. 

Additionally, as noted above, certain 

potential Clearing Members are not 

positioned to provide Market Data or 

bids on products in default auctions, as 

currently required under LCH SA’s Rule 

Book for General Members. These 

requirements could potentially act as 

barriers to these potential Clearing 

Members becoming Clearing Members. 

As such, LCH SA’s proposed changes 

allowing Select Members to choose not 

to submit Market Data or participate in 

Competitive Bidding if their Financial 

Group’s Group Total Margin Percentage 

remains below the Participation 

Threshold potentially may allow firms 

to join LCH SA as Select Members or 

current Select Members to provide 

clearing services for clients. This may 

also work to expand clearing services 

available to clients, which in turn 

potentially allows LCH SA to clear more 

trades. Importantly, the Proposed Rule 

Change does not alter LCH SA’s fee grid, 

Risk Management Framework,86 or any 

other membership standards for Select 

Members.87 By foregoing changes to its 

tariffs (specifically the unlimited tariff 

and variable tariff) and liquidity 

margining, and thereby maintaining the 

current structure whereby a General 

Member may clear for its own account 

and its clients at less cost than a Select 

Member, LCH SA provides incentive for 

its twenty-two CDSClear General 

Members 88 to remain General Members 

even though, under the proposed 

change, Select Members can clear for 

non-affiliated firms too. Further, under 

the Proposed Rule Change, a General 

Member would likely still have to 

participate in Competitive Bidding and 

submit Market Data due to its Group 

Total Margin Percentage.89 As such, 

these changes would promote the 

prompt and accurate clearance and 

settlement of securities transactions. 

LCH SA also proposes changes that 

would contribute to the smooth 

operation of LCH SA’s default auctions. 

As noted above, if there is an Event of 

Default, LCH SA shall auction off the 

defaulting Clearing Member’s 

positions.90 Select Members currently 

must participate in these auctions to the 

extent the Cleared Transactions in the 

Auction Packages all belong to the 

Product Families set out in that Select 

Member’s Product Family Form. 

However, sometimes Select Members do 

not actively trade in the Product 

Families selected on their Product 

Family Form, or they may not have the 

operational capacity to take part in 

default auctions. In LCH SA’s 

experience, Select Members have 

required assistance managing default 

files and routinely request assistance 

addressing questions during fire drill 

exercises.91 The proposed changes 

allow some Select Members to choose 

whether they would like to participate 

in Competitive Bidding without regard 

to the content of Auction Packages and 

eliminate the concepts of Product 

Families and the Product Family Form. 

These proposed changes should allow 

LCH SA’s default auction process to 

function more efficiently. The efficiency 

of these auctions potentially impacts 

LCH SA’s ability to limit losses resulting 

from a Clearing Member default. 

Because losses from a Clearing Member 

default could disrupt LCH SA’s ability 

to operate, this aspect of the Proposed 


khammond on DSK9W7S144PROD with NOTICES
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92 15 U.S.C. 78q–1(b)(3)(F). 

93 17 CFR 240.17Ad–22(e)(13). 

94Securities Exchange Act Release No. 98147 

(Aug. 16, 2023), 88 FR 57164, 57165–66 (Aug. 22, 

2023) (File No. SR–ICC–2023–009) (‘‘Order’’). 

Rule Change also helps promote LCH 

SA’s operations and therefore the 

prompt and accurate clearance and 

settlement of transactions. 

At the same time, the Proposed Rule 

Change would require certain Select 

Members to participate in Competitive 

Bidding because of their Financial 

Group’s Group Total Margin Percentage. 

This makes it more likely that LCH SA 

will have sufficient participation in its 

default auctions to successfully offload 

Auction Packages and ultimately 

continue operation through a Clearing 

Member default. By establishing a 

minimum level of participation, these 

proposed changes therefore would 

promote the efficiency of LCH SA’s 

default auctions without necessarily 

undermining the efficacy of those 

auctions, thus promoting LCH SA’s 

operations and therefore the prompt and 

accurate clearance and settlement of 

transactions. 

LCH SA’s proposed changes related to 

price submissions by Select Members 

also help promote the prompt and 

accurate clearance and settlement of 

securities transactions. The Proposed 

Rule Change would allow some Select 

Members to choose whether to receive 

Price Requirement Files for relevant 

Trading Cities and become bound, in 

respect of the Price Requirement Files 

received for relevant Trading Cities 

only, to submit market data. Under the 

Proposed Rule Change, other Select 

Members would have to submit Market 

Data as a result of their Financial 

Group’s Group Total Margin Percentage. 

By permitting and requiring Select 

Members to submit market data under 

certain circumstances, this aspect of the 

Proposed Rule Change could enhance 

the Market Data that LCH SA receives. 

Enhanced Market Data could, in turn, 

improve the accuracy of LCH SA’s endof-day prices, which could contribute to 

the accuracy of LCH SA’s outputs, 

including margin amounts, resulting 

from these prices. LCH SA uses this 

Market Data to determine margin 

amounts and manage the risks 

associated with clearing and settling 

securities transactions. These risks, if 

not properly managed, could cause 

losses to LCH SA that compromise its 

ability to operate. As such the proposed 

changes related to participation in price 

contribution also promote the prompt 

and accurate clearance and settlement of 

transactions. 

LCH SA’s proposed changes also 

clarify the process Select Members use 

to make elections through the Select 

Member Form. For example, the 

Proposed Rule Change notes that, under 

certain circumstances, Select Members 

may elect to submit Market Data and 

participate in Competitive Bidding 

through the Select Member Form. They 

can also nominate certain 

representatives through the Select 

Member Form. Relatedly, LCH SA’s 

proposal would indicate how a Select 

Member could change its elections. The 

Proposed Rule Change would also 

provide details related to the timing of 

the effectiveness of updates to the Select 

Member Form under certain 

circumstances. By clarifying the process 

through which Select Members can 

make elections through the Select 

Member Form, LCH SA gives effect to 

its other proposed changes, which as 

described above, expand LCH SA’s 

provision of clearing services, 

contribute to the smooth operation of 

LCH SA’s default auctions, and help 

enhance Market Data that LCH SA 

receives. As such, the proposed changes 

related to the introduction of the Select 

Member Form promote the prompt and 

accurate clearance and settlement of 

transactions. 

Therefore, the Proposed Rule Change 

is consistent with the requirements of 

Section 17A(b)(3)(F) of the Act.92

B. Consistency With Rule 17Ad– 

22(e)(13) Under the Act 

Rule 17Ad–22(e)(13) requires covered 

clearing agencies to establish, 

implement, maintain, and enforce 

written policies and procedures 

reasonably designed to ensure the 

covered clearing agency has the 

authority and operational capacity to 

take timely action to contain losses and 

liquidity demands and continue to meet 

its obligations by, at a minimum, 

requiring the covered clearing agency’s 

participants and, when practicable, 

other stakeholders to participate in the 

testing and review of its default 

procedures, including any close-out 

procedures, at least annually and 

following material changes thereto.93

As discussed above, the Proposed 

Rule Change would make participating 

in Competitive Bidding and default 

management drills elective for certain 

Select Members. At the same time, 

certain Select Members would still be 

required to participate in Competitive 

Bidding, specifically if their Financial 

Group’s Group Total Margin Percentage 

exceeds the specified threshold. As 

discussed above, in practice, this means 

that any Clearing Member that is part of 

the top six Financial Groups at LCH SA 

will be required to participate in 

Competitive Bidding and provide 

Market Data, even if that Clearing 

Member is a Select Member. This will 

help ensure that LCH SA will have 

sufficient participation in its default 

auctions to successfully offload Auction 

Packages and ultimately continue 

operation through a Clearing Member 

default. By establishing a minimum 

level of participation, these proposed 

changes therefore ensure LCH SA has 

the authority and operational capacity 

to take timely action to contain losses 

and liquidity demands and continue to 

meet its obligations. 

Additionally, under the Proposed 

Rule Change, certain Clearing Members 

and Applicants would still be required 

to participate in default management 

drills. Specifically, a Clearing Member 

Applicant seeking Select Membership 

and seeking to elect to participate in 

Competitive Bidding would be required 

to participate in (and satisfy LCH SA’s 

requirements with respect to the 

carrying out of) regular fire drills run by 

LCH SA from time to time in accordance 

with the Rule Book, or demonstrate that 

it has an associated entity or an LCH 

Approved Outsourcing Agent that can 

successfully do so. Similarly, Select 

Members that LCH SA reasonably 

believes will breach the Participation 

Threshold for sixty consecutive Clearing 

Days will also need to participate in 

testing to assess their capacity and 

ability to participate in Competitive 

Bidding. Ultimately, this will provide 

LCH SA with the information it needs 

to ensure it has the operational capacity 

to take timely action to contain losses 

and liquidity demands and continue to 

meet its obligations through its default 

management process. 

Proposed changes that improve a 

clearing agency’s ability to conduct a 

successful auction have been found to 

be consistent with Rule 17Ad–22(e)(13). 

For example, a proposed change to 

except an auction participant from a 

minimum bid requirement when the 

auction participant does not have the 

operational capacity to clear contracts in 

the relevant auction lot is consistent 

with the Act, because it improved the 

clearing agency’s auction process by 

helping to ensure that bids received in 

an auction are provided by members 

most able to value and risk manage the 

defaulter’s portfolio.94 As discussed 

above, the Proposed Rule change would 

allow certain Select Members to choose 

to participate in Competitive Bidding 

and would require those Select 

Members participating in Competitive 

Bidding to undergo default management 

drills. This change would allow certain 

Select Members who do not have the 


khammond on DSK9W7S144PROD with NOTICES
Federal Register / Vol. 89, No. 227 / Monday, November 25, 2024 / Notices 92989 

95Notice, 89 FR at 21579. 

96 Id. at 21582. 

97 17 CFR 240.17Ad–22(e)(13). 

98 17 CFR 240.17Ad–22(e)(18). 

99 17 CFR 240.17Ad–22(e)(18). 

100 15 U.S.C. 78s(b)(2). 

101 15 U.S.C. 78q–1(b)(3)(F). 

102 15 U.S.C. 78s(b)(2). 

103 15 U.S.C. 78s(b)(2). 

104 15 U.S.C. 78q–1(b)(3)(F). 

105 17 CFR 240.17Ad–22(e)(13). 

106 17 CFR 240.17Ad–22(e)(18). 

107 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). 

108 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

operational capacity to participate in the 

default auction process to choose not to 

participate in an auction rather than 

requiring them to place a bid.95 It would 

also work to identify, manage, and avoid 

issues LCH SA has encountered with its 

Select Members in navigating fire drill 

exercises.96 Thus, these aspects of the 

Proposed Rule Change would work to 

improve LCH SA’s auction process. 

Therefore, the Proposed Rule Change 

is consistent with the requirements of 

Rule 17Ad–22(e)(13) under the Act.97

C. Consistency With Rule 17Ad– 

22(e)(18) Under the Act 

Rule 17Ad–22(e)(18) requires covered 

clearing agencies to establish, 

implement, maintain, and enforce 

written policies and procedures 

reasonably designed to establish 

objective, risk-based, and publicly 

disclosed criteria for participation, 

which permit fair and open access by 

direct and, where relevant, indirect 

participants and other financial market 

utilities.98 As noted above, the Proposed 

Rule Change would expand access to 

LCH SA and facilitate fair and open 

access to LCH SA by indirect 

participants by allowing Select 

Members to provide clearing services to 

non-affiliated firms rather than just to 

Affiliated Firms. The Proposed Rule 

Change also would establish objective 

and publicly-disclosed criteria for 

participation by Applicants wishing to 

be Select Members, with respect to 

participation in competitive bidding, as 

discussed above. 

Therefore, the Proposed Rule Change 

is consistent with the requirements of 

Rule 17Ad–22(e)(18) under the Act.99

IV. Accelerated Approval of Proposed 

Rule Change, as Modified by 

Amendment No. 1 and Partial 

Amendment No. 1 

The Commission finds good cause, 

pursuant to Section 19(b)(2) of the 

Exchange Act,100 to approve the 

Proposed Rule Change prior to the 30th 

day after the date of publication of 

notice of the filing of Amendment No. 

1 and Partial Amendment No. 1 in the 

Federal Register. As discussed above, 

Amendment No. 1 added a requirement 

that a Select Member participate in 

Competitive Bidding in default auctions 

and contribute end-of-day prices should 

its Financial Group’s margins exceed a 

predetermined threshold over a 

designated time, and Partial 

Amendment No. 1 fixes certain errors in 

Amendment No. 1. These amendments 

do not otherwise change the purpose of 

or statutory basis for the Proposed Rule 

Change. 

For the reasons discussed above, the 

Commission finds that Proposed Rule 

Change, as modified by Amendment No. 

1 and Partial Amendment No. 1, is 

consistent with the requirement that 

LCH SA’s rules be designed to promote 

the prompt and accurate clearance and 

settlement of securities transactions 

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

Exchange Act.101 Accordingly, the 

Commission finds good cause, pursuant 

to Section 19(b)(2) of the Exchange 

Act,102 to approve the Proposed Rule 

Change, as modified by Amendment 

No.1 and Partial Amendment No. 1, on 

an accelerated basis, pursuant to Section 

19(b)(2) of the Exchange Act.103

IV. Conclusion 

On the basis of the foregoing, the 

Commission finds that the Proposed 

Rule Change, as modified by 

Amendment No. 1 and Partial 

Amendment No. 1, is consistent with 

the requirements of the Act, and in 

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

Act 104 and Rules 17Ad–22(e)(13) 105

and (e)(18) thereunder.106

It is therefore ordered pursuant to 

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

Proposed Rule Change, as modified by 

Amendment No. 1 and Partial 

Amendment No. 1 (SR–LCH SA–2024– 

002), be, and hereby is, approved on an 

accelerated basis.107

For the Commission by the Division of 

Trading and Markets, pursuant to delegated 

authority.108

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–27476 Filed 11–22–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–101655; File No. SR– 

CboeBZX–2024–112] 

Self-Regulatory Organizations; Cboe 

BZX Exchange, Inc.; Notice of Filing of 

a Proposed Rule Change To Expand 

BZX Rule 14.11(l) To Permit the 

Generic Listing and Trading of MultiClass ETF Shares 

November 19, 2024. 

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

Securities Exchange Act of 1934 (the 

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

notice is hereby given that on November 

8, 2024, Cboe BZX Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘BZX’’) filed with the 

Securities and Exchange Commission 

(the ‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III below, which Items have been 

prepared by the Exchange. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

Cboe BZX Exchange, Inc. (‘‘BZX’’ or 

the ‘‘Exchange’’) is filing with the 

Securities and Exchange Commission 

(‘‘Commission’’ or ‘‘SEC’’) a proposed 

rule change to amend Rule 14.11(l) to 

provide that the Exchange may approve 

a series of Exchange-Traded Fund 

(‘‘ETF’’) Shares for listing and/or trading 

on the Exchange that operates in 

reliance on exemptive relief to Rule 6c– 

11 under the Investment Company Act 

of 1940 (the ‘‘Investment Company 

Act’’) that permits the trust issuing the 

ETF Shares to offer an exchange-traded 

fund class in addition to classes of 

shares that are not exchange-traded. 

The text of the proposed rule change 

is also available on the Exchange’s 

website (http://markets.cboe.com/us/ 

equities/regulation/rule_filings/bzx/), at 

the Exchange’s Office of the Secretary, 

and at the Commission’s Public 

Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 


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