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[Federal Register Volume 89, Number 235 (Friday, December 6, 2024)]
[Notices]
[Pages 97142-97148]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-28547]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101790; File No. SR-LCH SA-2024-005]

Self-Regulatory Organizations; LCH SA; Notice of Filing of 
Proposed Rule Change Relating to Dealer Status

December 2, 2024.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4,\2\ notice is hereby given that on 
November 21, 2024, Banque Centrale de Compensation, which conducts 
business under the name LCH SA (``LCH SA''), filed with the Securities 
and Exchange Commission (``Commission'') the proposed rule change 
(``Proposed Rule Change''), as described in Items I, II and III below, 
which Items have been prepared by the clearing agency. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    LCH SA is proposing to amend its: (i) CDS Clearing Rule Book 
(``Rule Book''), and (ii) CDS Clearing Procedures (``Procedures'') 
(collectively the ``CDS Clearing Rules'') \3\ to incorporate new terms 
and to make conforming, clarifying, and clean-up changes in order to 
enable affiliates of a Clearing Member, which would be referred to as 
``CDS Dealers'', to present Original Transactions to LCH SA for 
clearing, novation and registration in the name of a Clearing Member 
without having to be admitted as either a Clearing Member or being a 
Client of a Clearing Member.\4\ The text of the Proposed Rule Change 
has been annexed as Exhibit 5 to File No. SR-LCH SA-2024-005. The 
implementation of the Proposed Rule Change will be contingent on LCH 
SA's receipt of all necessary regulatory approvals.
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    \3\ The version of the Rule Book and Sections 1 and 5 of the 
Procedures which includes the Proposed Rule Change reflects a 
separate proposed rule change previously submitted to the Securities 
and Exchange Commission (SEC) under the Filing No. SR-LCH SA-2024-
002 recently approved by the SEC.
    \4\ All capitalized terms not defined herein have the same 
meaning as in the Rule Book or Procedures, as applicable, in their 
version as available on LCH SA's website: https://www.lch.com/resources/rulebooks/lch-sa.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, LCH SA included statements 
concerning the purpose of and basis for the Proposed Rule Change and 
discussed any comments it received on the Proposed Rule Change. The 
text of these statements may be examined at the places specified in 
Item IV below. LCH SA has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    LCH SA is proposing to amend its CDS Clearing Rules to enable 
affiliates of Clearing Members that are registered as CCMs with LCH SA 
to present Original Transactions to LCH SA for clearing, novation and 
registration in the name of a Clearing Member that is a CCM \5\ without 
having to be admitted as either a Clearing Member or being a Client of 
a Clearing Member. A CCM's affiliate will need to be admitted as a CDS 
Dealer by LCH SA to a register of CDS Dealers before submitting any 
Original Transaction, under which such affiliate is acting as agent for 
and on behalf of its CCM or as principal,\6\ to LCH SA through an 
Approved Trade Source System.\7\ Under the current Rule Book, an 
affiliate of a Clearing Member may submit Original Transactions for 
clearing with LCH SA only if such affiliate is itself admitted as a 
Clearing Member of LCH SA or if it is a Client of a Clearing Member.
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    \5\ Pursuant to Section 1.1.1 of the Rule Book, a CCM means any 
legal entity admitted as a clearing member in accordance with the 
CDS Clearing Rules and party to the CDS Admission Agreement, 
provided that if such entity is an FCM/BD, it has satisfied LCH SA 
that it is able to provide the CDS Client Clearing Services in 
accordance with Title V prior to offering such services.
    \6\ In accordance with amended Section 1.2 of the Procedures. 
Thus, a CDS Dealer will not be permitted to submit any Original 
Transaction under which it is acting on behalf of anyone other than 
itself or its affiliated CCM to LCH SA for clearing.
    \7\ Pursuant to Section 1.1.1 of the Rule Book, the list of the 
Approved Trade Source Systems that can be used for the purposes of 
submitting Original Transactions to LCH SA for clearing is published 
in a Clearing Notice, which is available here: https://www.lch.com/system/files/media_root/Clearing%20Notice_ATSS_no_2021-001_04.01.2021.pdf.
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    The new status of CDS Dealer will allow affiliates of a CCM, that 
is either a General Member or a Select Member, registered as such CDS 
Dealers to present Original Transactions to LCH SA for clearing, 
novation and registration in the name of a Clearing Member. This new 
status will provide flexibility to Clearing Members in how they operate 
their execution and booking arrangements within their respective group, 
without the need to have multiple Clearing Members within such group or 
to onboard their affiliates as Clients. Specifically, it will enable 
Clearing Members to operate more efficiently by servicing their clients 
via the existing execution entities and, where applicable, 
documentation required but allows consolidation of clearing positions 
and margin within a single membership.
    A CDS Dealer will be required to enter into a tripartite agreement 
with LCH SA and a Clearing Member within its corporate group (the ``CDS 
Dealer Clearing Agreement''). Under this agreement, the CDS Dealer will 
agree to be bound by the CDS Clearing Rules.
    An Original Transaction presented by a CDS Dealer to LCH SA for 
clearing will give rise to the novation of such Original Transaction 
into a Cleared Transaction between LCH SA and the Clearing Member with 
which such CDS Dealer is party to a CDS Dealer Clearing Agreement, that 
will be registered in the House Trade Account of such Clearing Member; 
hence these Cleared Transactions under which the Clearing Member is 
acting as principal will be registered in the House Trade Account in 
which the Cleared Transactions resulting from the novation of Original 
Transactions presented by the Clearing Member on its own behalf are 
also registered.
    For illustrative purposes, Exhibit 3 provides an example of a 
simplified operational framework under the current model as compared to 
the proposed model for house and client transactions. Under the current 
operational framework reflected in ``Example 1A: House v. House 
Standard Trade'', a CCM may present Original Transactions to LCH SA for 
clearing, novation and registration in the House Trade Account of such 
CCM. In addition, an affiliate of a CCM may also present Original 
Transactions to LCH SA for clearing only if such affiliate is itself 
admitted as a Clearing Member of LCH SA or if it is a Client of a 
Clearing Member. Under the proposed framework reflected in ``Example 
1B: House v. Dealer Trade'', a CDS Dealer (as an affiliate of the CCM) 
will be able to present Original Transactions to LCH SA for clearing 
and novation, with the resulting trade registered in the House

[[Page 97143]]

Trade Account of the CCM that is party to the CDS Dealer Clearing 
Agreement. The resulting Cleared Transaction will exist between LCH SA 
and the CCM as party to the CDS Dealer Clearing Agreement.
    A client trade under the current framework is operationally similar 
to Example 1A in Exhibit 3. Under ``Example 2A: Client v. House 
Standard Trade'', a client may present an Original Transaction to LCH 
SA for clearing, novation and registration to LCH SA via a clearing 
broker. The resulting Cleared Transaction will exist between LCH SA and 
the client (via the clearing broker). Under the proposed framework 
reflected in ``Example 2B: Client v. Dealer Trade'', a CDS Dealer (as 
an affiliate of the CCM) may present an Original Transaction to LCH SA 
for clearing and novation, with the resulting transaction registered in 
the House Trade Account of the CCM. The CCM and not the CDS Dealer is 
therefore party to the Cleared Transaction with LCH SA. There are no 
changes to the operational structure of the transaction to the client 
in Example 2B.
    The criteria to be met by a CDS Dealer differ from the ones that 
shall be met by a Clearing Member. For example, the clearing membership 
criteria are designed to ensure that Clearing Members have sufficient 
financial resources and operational capacity to meet the obligations 
arising from participation in a central counterparty. In contrast, the 
criteria for a CDS Dealer to meet is primarily meant to ensure that LCH 
SA is able to receive trades directly from such CDS Dealer for 
clearing. Once the trade is cleared and registered in the house trade 
account of the Clearing Member, the resulting clearing trade will be a 
house cleared trade as any other trade directly submitted by the 
Clearing Member for its own account.
    Under the Proposed Rule Change, LCH SA will not have any direct 
exposure to the CDS Dealer, and this proposed change will only 
introduce a new source of trades from the Clearing Member. Given that 
an Original Transaction presented by the CDS Dealer is only between LCH 
SA and the Clearing Member, LCH SA's credit risk framework and the 
membership criteria will only apply to the Clearing Member. In 
addition, LCH SA does not anticipate any increase in operational risk 
resulting from an increase in the number of cleared transactions 
brought by CDS Dealers, as it will be able to leverage its current 
process for managing trade flows for existing Clearing Members.
1. Proposed Revisions to the Rule Book and Procedures
i. Rule Book
    LCH SA proposes to add additional defined terms and make amendments 
to existing defined terms contained within Title I, Chapter 1, Section 
1.1.1 of the Rule Book.
    The term ``CDS Dealer'' will be added to define the new status that 
LCH SA is proposing to implement under the Proposed Change Rule and 
means a Person admitted by LCH SA to the Register of CDS Dealers and 
who has not been removed from the Register of CDS Dealers and for the 
avoidance of any doubt, a CDS Dealer is not a Clearing Member. As 
further described below, a CDS Dealer will be required to comply with 
the criteria as provided for in Section 1.2 of the Procedures, pursuant 
to which it shall belong to the same Financial Group as its Clearing 
Member.
    The term of ``Register of CDS Dealers'' will be added to refer to 
the register which lists the CDS Dealers regarded by LCH SA as for the 
time being eligible to submit Original Transactions for registration as 
CCM Cleared Transactions by LCH SA.
    The term ``CDS Dealer Clearing Agreement'' will be added to refer 
to the written agreement that a CDS Dealer will be required to execute 
with LCH SA and a CCM.
    The term ``ATSS Participant'' will be modified to add a reference 
to a CDS Dealer as such a CDS Dealer will be required to be a 
participant of an Approved Trade Source System for the purpose of 
submitting Original Transactions, as part of the intraday and/or the 
backloading process, to LCH SA for clearing and will therefore be 
considered as an ATSS Participant.
    The term ``CCM Client'' will be amended to expressly indicate, for 
the avoidance of any doubt, that a CDS Dealer shall not be considered 
as a CCM Client.
    The term ``CCM House Margin Account'' will be modified to correct a 
typographical error by removing ``CCM'' before ``House Cleared 
Transactions'' as ``CCM House Cleared Transactions'' is not a defined 
term.
    The term ``Clearing Notice'' will be amended to add references to 
the CDS Dealers as the topics covered by such Clearing Notices will 
also be relevant to CDS Dealers (for instance, the occurrence of an 
event of default occurring in respect of a Clearing Member or LCH SA).
    The term ``Data Protection Law'' will be updated to refer to the 
latest EU and French regulations applicable under French law in respect 
of data protection matters.
    The term ``House Trade Account'' will be amended to make an express 
reference to Cleared Transactions resulting from the novation of 
Original Transactions presented by a CDS Dealer to LCH SA for clearing 
that will be registered in the House Trade Account of the Clearing 
Member with which that CDS Dealer is party to a CDS Dealer Clearing 
Agreement.
    The term ``House Trade Leg'' will be amended to include trade legs 
of a CDS or Index Swaption in respect of which a CDS Dealer acts as 
protection seller or buyer or Index Swaption buyer or seller, 
respectively, so that such trade legs will be covered in the definition 
of ``Original Transaction''.
    The term ``Index Swaption Clearing Service'' will be modified to 
provide that, in addition to Clearing Members, CDS Dealers and Clients 
will be able to submit Index Swaptions for clearing by LCH SA.
    The term ``Procedures'' will be modified to specify that Procedures 
will also provide for the procedure for application for admission to 
the Register of CDS Dealers and regulation of CDS Dealers admitted to 
such register.
    Beyond definitional changes, a new Article 1.1.3.10 will be added 
to Section 1.1.3 (Interpretation and references) to make clear that 
nothing in the CDS Clearing Documentation shall give rise to a 
requirement for LCH SA to take any action which would contravene the 
provisions of Applicable Law or its continuing regulatory obligations. 
Indeed, each of the CDS Clearing Document is subject to, and 
interpreted in accordance with, the relevant Applicable Law. This 
amendment is not linked to the introduction of the CDS Dealer status 
but shall apply to the interpretation of each provision of the CDS 
Clearing Documentation for the avoidance of doubt.
    LCH SA also proposes to amend Article 1.2.4.1 to specify that the 
time fixed by the CDS Clearing Documentation for the doing of any acts 
in relation to LCH SA may be extended or waived by LCH SA in its 
discretion, in respect of acts done by a CDS Dealer, similarly to what 
is currently provided in respect of acts done by a Clearing Member.
    LCH SA proposes to amend Article 1.2.5.1 to extend to CDS Dealers 
the provision relating to the conditions in which LCH SA delivers a 
notice, order or communication to Clearing Members.
    LCH SA proposes to amend Section 1.2.10 to extend the applicable 
liability provisions which currently apply to LCH SA and its Clearing 
Members, to

[[Page 97144]]

the CDS Dealers as well and pursuant to which a CDS Dealer shall be 
liable for any direct Damage incurred by LCH SA as a consequence of the 
CDS Dealer's breach of any of its obligation under the CDS Clearing 
Documentation or the terms of a Cleared Transaction (Article 1.2.10.1). 
Amended Article 1.2.10.2 will be amended to specify that a CDS Dealer, 
as this is currently the case for a Clearing Member, will not be held 
liable for any special, indirect or consequential Damage or any Damage 
which results from abnormal or fraudulent use of the CDS Clearing 
System by third parties, or for any Damage resulting from acts or 
omissions of third parties, other than members of its respective 
Financial Group. LCH SA also proposes to add a reference to CDS Dealers 
to the cases where LCH SA is not liable for damages arising out of or 
in connection with certain situations involving the CDS Dealers, that 
are mentioned in Article 1.2.10.3.
    LCH SA will process personal data concerning representatives, 
managers, employees or any other individuals acting on behalf of CDS 
Dealers, therefore requiring such CDS Dealers to notify each of their 
relevant Representatives that their personal data is disclosed to LCH 
SA. Articles 1.2.13.1 and 1.2.13.4 will be modified accordingly to 
reflect the foregoing. In addition, Article 1.2.13.5 will be amended to 
provide that CDS Dealers consent to the recording of telephone 
conversations and agree to obtain any necessary consent of, and give 
any necessary notice of such records to, its relevant personnel, and 
agree that recordings may be used in evidence.
    References to CDS Dealers are proposed to be added in Article 
2.2.7.7 to provide that such CDS Dealers use the services offered by 
Approved Trade Source Systems in accordance with their own contractual 
arrangements and that LCH SA will not be responsible for verifying the 
content of such contractual arrangements, as this is currently the case 
for Clearing Members. CDS Dealers will need to be participants of an 
Approved Trade Source System at least to be able to submit Original 
Transactions to LCH SA for clearing.
    LCH SA is proposing to amend Article 2.3.1.1 to request each 
Clearing Member to notify LCH SA in case of any material breach of the 
CDS Clearing Documentation by any of the CDS Dealers with which such a 
Clearing Member is party to a CDS Dealer Clearing Agreement.
    LCH SA proposes to amend Article 2.3.1.5(ii) so that Clearing 
Members will not be in breach of any obligation to provide information 
to LCH SA if they are prevented from providing such information due to 
the refusal of a CDS Dealer--as this is currently the case for 
Clients--to provide the relevant Clearing Member with the required 
information (provided the Clearing Member has undertaken reasonable due 
diligence and provides LCH SA with documented proof of its inability to 
obtain relevant information from the CDS Dealer despite such due 
diligence).
    LCH SA is proposing to create a new Chapter 5 in Title II relating 
to the status of a CDS Dealer. This chapter sets out the role of a CDS 
Dealer, consisting in the ability to present Original Transactions to 
LCH SA for clearing, novation and registration in the name of the 
Clearing Member with which the relevant CDS Dealer is party to a CDS 
Dealer Clearing Agreement in the CDS Clearing System pursuant to the 
CDS Clearing Documentation. New Chapter 5 provides that once a CDS 
Dealer is admitted to the Register of CDS Dealers, such CDS Dealer 
shall automatically and without further formalities be subject to, and 
bound by, the CDS Clearing Documentation. This new Chapter 5 also 
refers to Section 1 of the Procedures, which specifies the conditions 
under which an applicant may be considered for admission into the 
Register of CDS Dealers as a CDS Dealer, including that the applicant 
for CDS Dealer status must have a clearing arrangement in place with a 
Clearing Member within their Financial Group, as well as the ongoing 
obligations applicable to a CDS Dealer. Finally, LCH SA is proposing to 
provide in new Chapter 5 that it may suspend or remove a CDS Dealer 
from the Register of CDS Dealers and the consequences of any such 
suspension which are, for a suspended CDS Dealer, to remain bound by 
all of its obligations under the CDS Clearing Documentations and its 
CDS Dealer Clearing Agreement and to be removed from the Register of 
CDS Dealers if such CDS Dealers has been suspended for a period of more 
than three months. If the membership of a Clearing Member which has 
signed a CDS Dealer Clearing Agreement with a CDS Dealer is suspended 
or terminated, its CDS Dealer will be automatically suspended, or 
removed, from the Register of CDS Dealers.
    LCH SA is proposing to amend Articles 3.1.6.1(iii) and (iv) 
(describing the consequences of the novation of Original Transactions 
that are either CDS or Index Swaptions) to provide that the Clearing 
Member with which a CDS Dealer is party to a CDS Dealer Clearing 
Agreement will become party to the relevant Cleared Transaction novated 
from an Original Transaction presented by such CDS Dealer for clearing 
by LCH SA.
    Article 3.1.6.4, which currently provides for the assumptions made 
by LCH SA in respect of any Original Transaction received for clearing, 
will be amended to also cover Original Transactions submitted by CDS 
Dealers and therefore such CDS Dealer (like a Clearing Member) will 
acknowledge and agree that certain notices on any event that may be 
delivered in respect of an Original Transaction, such as a Credit Event 
Notice, in relation to an Original Transaction accepted for clearing by 
LCH SA shall be deemed never to have been delivered at the Novation 
Time.
    LCH SA also proposes to amend Article 3.1.6.6 to extend the 
application of such Article to CDS Dealers in respect of their ability 
to submit Original Transactions through a particular Approved Trade 
Source System that may be suspended from time to time.
    LCH SA proposes to replace ``Clearing Member concerned'' with 
``Clearing Member in whose Trade Accounts such Cleared Transactions are 
registered'' in Article 3.1.6.7 to include Cleared Transactions novated 
from Original Transactions presented by a CDS Dealer for clearing by 
LCH SA in the Cleared Transactions registered on the basis of incorrect 
or corrupted data in respect of which a Clearing Member agrees to be 
bound. Further, under the proposed amended version of the same article, 
LCH SA will not be liable to CDS Dealers with regard to the 
registration of such Cleared Transactions.
    Article 3.1.9.1 will be amended to provide that, in the context of 
the CDS Default Management Process applicable to the default of a 
Clearing Member, the notice that is published by LCH SA will notify CDS 
Dealers, in addition to all Clearing Members, that it will not novate 
any Original Transactions submitted to LCH SA for clearing on the 
Clearing Day on which LCH SA requests that an adjustment be made to the 
Loss Distribution Cap Amount for one or more Non-Defaulting Clearing 
Member(s) and until each affected Non-Defaulting Clearing Member has 
agreed to such adjustment. LCH SA is proposing to add a reference to 
CDS Dealers in Article 3.1.9.4 so that LCH SA will also inform CDS 
Dealers of the arising of an Early Termination Trigger Date. LCH SA 
proposes to remove the reference to Clearing Members at the end of the 
same article in order not to imply that only Clearing Members are able 
to submit Original Transactions to LCH SA for clearing, as CDS Dealers 
will also be authorized to do so.
    LCH SA proposes to add a reference to CDS Dealers in Articles 
3.1.10.1 and

[[Page 97145]]

3.1.10.2 to provide that LCH SA will arrange for the removal of 
Backloading Transactions and Intraday Transactions from the TIW on 
behalf of the relevant CDS Dealers (in addition to the Clearing Members 
and Clients).
    LCH SA proposes to amend Article 4.2.7.2 so that Clearing Members 
will be authorized to provide Markit LCH Settlement Prices to CDS 
Dealers, as it is currently the case for Clients of Clearing Members.
    LCH SA is proposing to amend Article 4.3.2.3 which currently 
provides for the non-exhaustive list of measures that LCH SA may take, 
following the issuance of a Default Notice in respect of a Defaulting 
Clearing Member, to allow LCH SA to suspend the ability of the CDS 
Dealers with whom a Defaulting Clearing Member is party to a CDS Dealer 
Clearing Agreement to submit new Original Transactions for clearing (in 
indent (iv)).
    Under the current Rule Book, Article 5.1.1.1 provides that, 
pursuant to EMIR, an Affiliate of a CCM shall be treated as a CCM 
Client. LCH SA proposes to delete this sentence and specify at the 
beginning of the same article that a CCM Client may include an 
Affiliate of a CCM, considering that under the Proposed Rule Change an 
Affiliate of a CCM may also be a CDS Dealer which may submit Original 
Transactions to LCH SA for clearing that will result in the 
registration of Cleared Transactions in the House Trade Account of the 
Clearing Member (excluding any Client Trade Account).
ii. Procedures
(A) Section 1
    LCH SA is proposing to rename Section 1 of the Procedures 
(Membership) ``Clearing Member and CDS Dealer Status'' since this 
Section will also cover the application process for the CDS Dealer 
status.
    Paragraph 1.1 will be amended to explicitly indicate that such 
paragraph relates to the application procedure for Clearing Member 
status and therefore to distinguish it from the new application 
procedure for CDS Dealer status set out in new Paragraph 1.2. Such new 
application procedure is also different from the process applicable for 
the onboarding the Clearing Member's clients since the Cleared 
Transactions resulting from the novation of the Original Transactions 
submitted by the CDS Dealer are registered in the House Trade Account 
of a CDS Dealer's Clearing Member and not in a Client Trade Account. 
Where necessary, references to the status of Clearing Member will be 
added in Paragraph 1.1. Further, a minor amendment is being made to 
correct a typographical error by replacing the reference to the 
``Access Agreement'' which is not defined in the CDS Clearing Rules 
with a reference to an agreement providing an Applicant with a 
technical access to LCH SA that must be executed by the Applicant and 
LCH SA.
    LCH SA proposes to delete the reference to ``Regulatory Body'' in 
Paragraph 1.1(d)(iii) as this term is not defined in the Rule Book and 
the reference to existing defined term ``Competent Authority'' is 
sufficient. A new Paragraph 1.2 will be added providing for the new 
application procedure for CDS Dealer status. It will mainly replicate 
the application procedure that applies to applicants for the Clearing 
Member status; hence this new Paragraph 1.2(a) will address the form in 
which such an application must be made with LCH SA and will provide 
that CDS Dealers that have been approved by LCH SA shall, within six 
months of notification of their approval, fulfil all conditions 
attached to their approval (if any). Paragraph 1.2(b) will also 
describe the actions LCH SA will be authorized to take in respect of an 
applicant for CDS Dealer status as part of the due diligence and 
application review process. As for any applicant that wishes to be 
admitted as a Clearing Member, LCH SA will be permitted to: (i) make 
enquiries of any nature about the applicant for the CDS Dealer status 
and any Person connected or associated with the applicant; (ii) ask the 
applicant to supply additional information and take whatever steps are 
necessary to verify information (which may include an on-site visit); 
(iii) disclose information to a Competent Authority, LCH SA's insurers 
in connection with any form of insurance, or otherwise in accordance 
with the CDS Clearing Documentation and the CDS Dealer Clearing 
Agreement; (iv) and to endeavor to process, consider and decide upon an 
application in a timely fashion, but owes no duty or obligation to the 
applicant for the CDS Dealer status to do so, contrary to an 
application for the clearing membership for which there is an 
indicative timeline provided for in Section 1.1 of the Procedures to 
comply with the regulatory transparency requirements that LCH SA shall 
comply with.\8\ It should be noted that, contrary to the applicable 
process for any applicant for the Clearing Member status, there will be 
no requirement for an applicant for the CDS Dealer status to carry out 
any operational test linked to its capacity of using the CDS Clearing 
Service; indeed, the CDS Dealer is a party to the Cleared Transactions 
resulting from the novation of Original Transactions submitted by the 
CDS Dealer to LCH SA for clearing.
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    \8\ Especially, in accordance with Article 37 of 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.
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    Paragraph 1.2(c) will set out the following criteria that an 
applicant for CDS Dealer status must satisfy in order to be considered 
for admission to the Register of CDS Dealers: \9\
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    \9\ The criteria to be met by a CDS Dealer differ from the ones 
that shall be met by a Clearing Member. Indeed, the clearing 
membership related criteria are designed to ensure that clearing 
members have sufficient financial resources and operational capacity 
to meet the obligations arising from participation in a central 
counterparty, which is not the case for a CDS Dealer for which the 
criteria shall ensure that LCH SA is able to receive trades directly 
from them for clearing. Once the trade is cleared and registered in 
the house trade account of the Clearing Member, the resulting 
clearing trade will be a house cleared trade as any other trade 
directly submitted by the Clearing Member for its own account.
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    (i) be validly incorporated and existing under the laws of its 
jurisdiction of incorporation and (if relevant in such jurisdiction) be 
in good standing;
    (ii) execute and maintain a CDS Dealer Clearing Agreement and 
comply with the provisions hereof;
    (iii) undertake to accept and comply with the CDS Clearing 
Documentation by executing the CDS Dealer Clearing Agreement;
    (iv) accept to comply with all Applicable Law relating to its 
status as a CDS Dealer and the performance of its obligations pursuant 
to the CDS Clearing Documentation;
    (v) ensure that all fees and other amounts required by LCH SA are 
paid in accordance with the CDS Clearing Documentation and/or the CDS 
Dealer Clearing Agreement;
    (vi) be an ATSS Participant for the purpose of submitting Original 
Transactions for clearing by LCH SA;
    (vii) provided the applicant specifies any number of branches, with 
agreement from its corresponding Clearing Member from which it proposes 
to submit Original Transactions for clearing by LCH SA, such branches 
shall be of the same legal entity as the CDS Dealer; and
    (viii) have a clearing arrangement governing the submission of 
Original Transactions in place with a Clearing Member, with which that 
applicant for the CDS Dealer status is party to a CDS Dealer Clearing 
Agreement, within their Financial Group; this arrangement will

[[Page 97146]]

take the form of either a give up agreement or an agency agreement.
    The CDS Dealer shall also comply with the provisions of the CDS 
Dealer Clearing Agreement to which it is a party.
    Finally, the scope of Paragraph 1.3 (Change Procedure) will be 
clarified by adding a reference to the clearing membership (and 
therefore excluding CDS Dealer status).
(B) Section 4
    LCH SA is proposing to amend the criteria constituting the 
Eligibility Requirements for an Original Transaction set out in 
Paragraph 4.1(c) in order to: (i) specify that the Eligibility 
Requirements relating to the Clearing Member apply to the Clearing 
Member in whose Account Structure the Cleared Transaction corresponding 
to an Original Transaction is to be registered so that it also applies 
to a Clearing Member whose CDS Dealers and/or Clients submit Original 
Transactions to LCH SA for clearing; (ii) add the new criteria pursuant 
to which a CDS Dealer presenting an Original Transaction shall not be 
suspended or removed from the Register of CDS Dealers as an new indent 
(ii); and (iii) indicate that LCH SA shall be permitted to clear such 
Original Transaction, including when it will have been presented by a 
CDS Dealer.
    Paragraphs 4.2(f)(ii), 4.3(e)(ii), 4.4(e)(ii) currently provide 
that, if and for so long as any Clearing Member has one or more Open 
Position(s) registered in any of its Margin Accounts, the Clearing 
Member may submit for clearing an Original Transaction which no longer 
meets the applicable Eligibility Requirements if such Original 
Transaction is a risk reducing transaction. These paragraphs will be 
amended to indicate that CDS Dealers will also be authorized to submit 
such risk reducing transactions; we have also taken the opportunity to 
add a reference to Clients for the sake of clarity.\10\
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    \10\ For the avoidance of doubt, this amendment is not linked to 
the CDS Dealer initiative.
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(C) Section 5
    LCH SA is proposing to amend Paragraph 5.13 which currently deals 
with the process applicable to the Original Transactions cleared in 
error to provide that a Clearing Member will be also able to reverse an 
Original Transaction presented for clearing by a CDS Dealer in error by 
submitting an equal but opposite transaction to LCH SA for clearing and 
then using the compression functionality, in the same way as for any 
Original Transaction that a Clearing Member has submitted to LCH SA for 
clearing in error.
2. Technical Amendments
    The amendments to the Procedures and Rule Book also contain 
typographical corrections, clean-up changes, cross references 
corrections and similar technical corrections as well as various 
conforming references to the new or revised defined terms:
    (i) in respect of the Rule Book, the term ``Trading Venue 
Transaction'', Articles 2.2.3.1, 2.2.1.1(iv), 2.2.2.1(iv), 2.4.1.1, 
4.2.7.7., 5.1.1.3(xviii), the second paragraph of Article 5.3.3.2 and 
Articles 5.3.5.1, 5.3.5.2, 5.3.5.4 and 6.1.1.3(xvi). We have also taken 
the opportunity to replace any reference to a ``person'' with the 
defined term ``Person'' for consistency purposes in Article 1.0.1.2, 
Section 1.1.1, Articles 1.2.12.1, 1.2.12.2, 2.1.1.2, 4.2.7.5, 6.1.1.2 
and the Annex of Appendix 1;
    (ii) in respect of Section 1 of the Procedures, the numbering of 
certain sub-paragraphs of Paragraph 1.1 and the paragraphs following 
the new Paragraph 1.2 and the use of the defined term ``Person''; and
    (iii) in respect of Section 5 of the Procedures, Paragraphs 
5.2(a)(iii), 5.5(a), 5.18.3, 5.18.4, 5.18.5(a), 5.6(a) and 5.8(a) with 
the use of the defined term ``website'' instead of referring to ``LCH 
website''. Paragraph 5.16(a)(iii)(G)(1) is also being amended to remove 
reference to the ``CDSClear Margin And Product Flows Document'', as 
this is duplicative.
2. Statutory Basis
    LCH SA believes that the Proposed Rule Change is consistent with 
the requirements of Section 17A of the Exchange Act \11\ and the 
regulations thereunder, including the clearing agency standards under 
Exchange Act Rule 17Ad-22.\12\ Section 17A(b)(3)(F) of the Exchange Act 
\13\ requires, among other things, that the rules of a clearing agency 
be designed to promote the prompt and accurate clearance and settlement 
of securities transactions and, to the extent applicable, derivative 
agreements, contracts, and transactions, to foster cooperation and 
coordination with persons engaged in the clearance and settlement of 
securities transactions, and are not designed to permit the unfair 
discrimination in the admission of participants or among participants 
in the use of the clearing agency. LCH SA also notes that the 
Congressional findings set forth under Section 17A indicate that 
Section 17A was enacted to, among other things, reduce unnecessary 
costs on investors.
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    \11\ 15 U.S.C. 78q-1.
    \12\ 17 CFR 240.17Ad-22.
    \13\ 15 U.S.C. 78q-1(b)(3)(F).
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    As discussed above, LCH SA is proposing to amend its CDS Clearing 
Rules to enable affiliates of a Clearing Member admitted by LCH SA to 
the Register of CDS Dealers to present Original Transactions to LCH SA 
for clearing, novation and registration in the name of a Clearing 
Member without having to be admitted as either a Clearing Member or 
being a Client of a Clearing Member. By allowing affiliates of a 
Clearing Member to present Original Transactions to LCH SA for clearing 
in this manner, the Proposed Rule Change will broaden the solutions for 
Clearing Members and their affiliates and enable further optimization 
of their clearing activities, thus reducing the overall cost of 
clearing which is consistent with the unnecessary clearing costs 
reduction policy underlying the adoption of Section 17A of the Exchange 
Act. Further, the Proposed Rule Change will promote flexibility and 
permit Clearing Members and their affiliates to manage and mitigate 
risks in a manner that is more closely tailored to their needs and the 
needs of their customers. The Proposed Rule Change will also facilitate 
a more efficient access to cleared markets by CDS Dealers, which may 
result in a larger number of cleared transactions that are carried out 
in a clear and transparent manner. LCH SA does not anticipate any 
increase in operational risk resulting from an increase in the number 
of cleared transactions, as it will be able to leverage its current 
process for managing trade flows for existing Clearing Members. The 
Proposed Rule Change may also contribute to more efficient and 
systematic clearing of more products by Clearing Members, thus 
contributing to the prompt and accurate clearance process and 
settlement of securities transactions and derivative agreements, 
contracts, and transactions, which will be in the public interest and 
consistent with Section 17A of the Exchange Act and the rules 
promulgated thereunder. Specifically, clearing Members will be able to 
consolidate their cleared positions and margin within a single 
membership under the Proposed Rule Change. In addition, Clearing 
Members will have the benefit of a single netting pool for all trades 
cleared. This provides efficiency of margin offset, while also reducing 
funding requirements of a separate default fund contribution if joining 
as a standalone Clearing Member Further, the Proposed Rule Change will 
not have any impact on the existing risk methodology applied by LCH SA 
or on

[[Page 97147]]

LCH SA's existing policies and procedures for assuring the safeguarding 
of securities and funds which are in the custody or control of the 
clearing agency or for which it is responsible, which is also 
consistent with Section 17A of the Exchange Act and the rules 
promulgated thereunder. LCH SA will continue to apply its existing risk 
methodology and the policies and procedures, thereunder to Clearing 
Members, regardless of whether such Clearing Members provide clearing 
services for CDS Dealers, primarily because executed trades made by CDS 
Dealers will be between LCH SA and the respective Clearing Member. 
Clearing Members will still be required to comply with the Membership 
Requirements set forth in Article 2.2.1.1. of the Procedures, which 
include, inter alia, minimum capital requirements and maintaining a 
minimum internal credit score.
    LCH SA also believes that the Proposed Rule Change is consistent 
with the requirements of Exchange Act Rule 17Ad-22(e)(18) \14\ and 
(e)(19) \15\. Rule 17Ad-22(e)(18)(i) provides, inter alia, that a 
covered clearing agency establish objective, risk-based, and publicly 
disclosed criteria for participation, which permits fair and open 
access by direct and, where relevant, indirect participants and other 
financial market utilities.\16\ Rule 17Ad-22(e)(19) provides, inter 
alia, that a covered clearing agency identify, monitor, and manage the 
material risks arising from arrangements in which firms that are 
indirect participants in the covered clearing agency rely on the 
services provided by direct participants to access the covered clearing 
agency's payment, clearing, or settlement facilities.\17\
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    \14\ 17 CFR 240.17Ad-22(e)(18).
    \15\ 17 CFR 240.17Ad-22(e)(19).
    \16\ 17 CFR 240.17Ad-22(e)(18).
    \17\ 17 CFR 240.17Ad-22(e)(19).
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    By enabling affiliates of a Clearing Member admitted by LCH SA to 
the Register of CDS Dealers to present Original Transactions to LCH SA 
for clearing, novation and registration in the name of a Clearing 
Member without having to be admitted as either a Clearing Member or 
being a Client of a Clearing Member, LCH SA is increasing access to its 
clearing and settlement services. In doing so, LCH SA is proposing 
amendments to its Procedures for the admission of CDS Dealers that are 
based on reasonable risk-related participation requirements that are 
tailored to and commensurate with the specific risks of such an 
arrangement, and are publicly disclosed. LCH SA is also proposing to 
amend its Procedures to describe the actions it will be authorized to 
take in respect of an applicant for CDS Dealer status as part of the 
due diligence and application review process. This process will align 
with the existing review process for onboarding Clearing Member 
applicants. Furthermore, CDS Dealers will be required to enter into a 
CDS Dealer Clearing Agreement whereby they will be bound by the CDS 
Clearing Rules. The CDS Dealer Clearing Agreement will provide LCH SA 
with the ability to gather information about CDS Dealers to identify, 
monitor, and manage any material risks arising from the arrangement, 
including by allowing LCH SA to make enquiries of any nature regarding 
the CDS Dealer and asking the CDS Dealer to supply additional 
information for purposes of assessing whether such CDS Dealer meets the 
criteria to remain on the Register of CDS Dealers. As such, LCH SA 
believes that the Proposed Rule Change is consistent with Rule 17Ad-
22(e)(18) \18\ and (e)(19).\19\
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    \18\ 17 CFR 240.17Ad-22(e)(18).
    \19\ 17 CFR 240.17Ad-22(e)(19).
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B. Clearing Agency's Statement on Burden on Competition

    Section 17A(b)(3)(I) of the Act requires that the rules of a 
clearing agency not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.\20\ LCH SA does 
not believe that the Proposed Rule Change would impose burdens on 
competition that are not necessary or appropriate in furtherance of the 
purposes of the Act. The Proposed Rule Change would provide flexibility 
of clearing services access to affiliates of Clearing Members but would 
not otherwise affect the ability of Clearing Members or other market 
participants generally to engage in cleared transactions or to access 
LCH SA's clearing services. Therefore, LCH SA does not believe that the 
Proposed Rule Change would impose a burden on competition not necessary 
or appropriate in furtherance of the purposes of the Act.
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    \20\ 15 U.S.C. 78q-1(b)(3)(I).
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C. Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants or Others

    Written comments relating to the Proposed Rule Change have not been 
solicited or received. LCH SA will notify the Commission of any written 
comments received by LCH SA.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) by order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should
    be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change, security-based swap submission, or advance notice 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-regulations/self-regulatory-organization-rulemaking); 
or
     Send an email to [email protected]. Please include 
file number SR-LCH SA-2024-005 on the subject line.

Paper Comments

     Send paper comments in triplicate to Vanessa Countryman, 
Secretary, Securities and Exchange Commission, 100 F Street NE, 
Washington, DC 20549.

All submissions should refer to file number SR-LCH SA-2024-005. 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,

[[Page 97148]]

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 LCH SA and on LCH 
SA's website at: https://www.lch.com/resources/rulebooks/proposed-rule-changes.
    Do not include personal identifiable information in submissions; 
you should submit only information that you wish to make available 
publicly. We may redact in part or withhold entirely from publication 
submitted material that is obscene or subject to copyright protection. 
All submissions should refer to File Number SR-LCH SA-2024-005 and 
should be submitted on or before December 27, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-28547 Filed 12-5-24; 8:45 am]
BILLING CODE 8011-01-P
```