Federal Register / Vol. 86, No. 144 / Friday, July 30, 2021 / Notices 41115 

25 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Capitalized terms used but not defined herein 

have the meanings specified in the Rule Book, the 

Clearing Supplement, the Procedures, and the 

Clearing Regulations, as applicable. 

4Self-Regulatory Organizations; LCH SA; Notice 

of Filing of Proposed Rule Change Relating to the 

Clearing of Single-Name Credit Default Swaps by 

U.S. Customers, Exchange Act Release No. 34– 

91676 (April 26, 2021); 86 FR 23445 (May 3, 2021) 

(SR–LCH SA–2021–001) (‘‘Notice’’). 

5Self-Regulatory Organizations; LCH SA; Notice 

of Designation of Longer Period for Commission 

Action on Proposed Rule Change Relating to the 

Clearing of Single-Name Credit Default Swaps by 

U.S. Customers, Exchange Act Release No. 34– 

92142 (June 10, 2021); 86 FR 32079 (June 16, 2021) 

(SR–LCH SA–2021–001). 

(B) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

NYSEArca–2021–65 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to: Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–NYSEArca–2021–65. 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 (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549 on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number SR–NYSEArca–2021–65 and 

should be submitted on or before 

August 20, 2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.25

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–16234 Filed 7–29–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–92501; File No. SR–LCH 

SA–2021–001] 

Self-Regulatory Organizations; LCH 

SA; Order Approving Proposed Rule 

Change Relating to the Clearing of 

Single-Name Credit Default Swaps by 

U.S. Customers 

July 26, 2021. 

I. Introduction 

On April 13, 2021, Banque Centrale 

de Compensation, which conducts 

business under the name LCH SA (‘‘LCH 

SA’’), filed with the Securities and 

Exchange Commission (‘‘Commission’’ 

or ‘‘SEC’’), pursuant to Section 19(b)(1) 

of the Securities Exchange Act of 1934 

(the ‘‘Act’’),1 and Rule 19b–4,2 a 

proposed rule change to amend LCH 

SA’s (i) CDS Clearing Rule Book (the 

‘‘Rule Book’’); (ii) CDS Clearing 

Supplement (the ‘‘Clearing 

Supplement’’); (iii) CDS Clearing 

Procedures (the ‘‘Procedures’’); and (iv) 

FCM Clearing Regulations (‘‘Clearing 

Regulations’’) to allow LCH SA to offer 

clearing services in respect of singlename CDS that are security-based swaps 

(‘‘SBS’’) submitted by Clearing Members 

on behalf of their U.S. clients.3 The 

proposed rule change was published for 

comment in the Federal Register on 

May 3, 2021.4 On June 10, 2021, the 

Commission designated a longer period 

within which to take action on the 

proposed rule change, until August 1, 

2021.5 The Commission did not receive 

comments regarding the proposed rule 

change. For the reasons discussed 

below, the Commission is approving the 

proposed rule change. 

II. Description of the Proposed Rule 

Change 

Currently, LCH SA’s Clearing 

Members are permitted to submit for 

clearing swaps on behalf of their U.S. 

clients. The proposed rule change 

would amend the LCH SA documents 

mentioned above to permit LCH SA’s 

Clearing Members also to submit for 

clearing SBS on behalf of their U.S. 

clients. Thus, after the proposed rule 

change becomes effective, LCH SA 

would permit its Clearing Members to 

submit for clearing both swaps and SBS 

on behalf of their U.S. clients. 

In addition to this initiative, the 

proposed rule change would also make 

certain other confirming and clarifying 

changes, as discussed further below in 

Part II.E. 

A. Rule Book 

To facilitate this initiative, the 

proposed rule change would amend the 

Rule Book to, among other things, (i) 

modify existing and adopt new defined 

terms; (ii) modify the membership 

requirements applicable to Clearing 

Members; (iii) remove provisions that 

prohibit Clearing Members from offering 

clearing services to U.S. clients with 

respect to SBS; (iv) establish the account 

structure for Clearing Members clearing 

SBS on behalf of U.S. clients; (v) update 

provisions to apply them to Clearing 

Members that are broker-dealers; and 

(vi) amend the Appendix to apply 

relevant provisions of the CDS Default 

Management Process to SBS. These 

amendments are discussed below 

according to the different titles of the 

Rule Book. 

i. Title I 

The proposed rule change would add 

new, and modify existing, defined terms 

related to Clearing Members and Clients 

found in Title I of the Rule Book. These 

changes would facilitate registered 

broker-dealers becoming Clearing 

Members for the purpose of clearing 

SBS on behalf of U.S. clients. For 

example, the proposed rule change 

would add a definition for ‘‘BD,’’ to 

mean a legal entity that is a ‘‘broker’’ or 

‘‘dealer’’ as defined in Section 3(a)(4) or 

3(a)(5) of the Act, respectively, and is 

registered in such capacity with the 

Commission and a member in good 

standing of FINRA. Similarly, the 

proposed rule change would amend the 

defined term ‘‘FCM Clearing Member’’ 

to be ‘‘FCM/BD Clearing Member.’’ As 

amended, the term ‘‘FCM/BD Clearing 

Member’’ would mean any FCM, BD, or 


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6See Order Granting Conditional Exemptions 

Under the Securities Exchange Act of 1934 in 

Connection With Portfolio Margining of Swaps and 

Security-Based Swaps, Exchange Act Release No. 

68433 (Dec. 14, 2012); 77 FR 75211 (Dec. 19, 2012) 

(‘‘Portfolio Margining Order’’) (setting out certain 

conditions that dually registered clearing agencies/ 

derivatives clearing organizations and participating 

BD/FCMs must satisfy when offering a program to 

commingle and portfolio margin cleared CDS for 

customer positions). 

legal entity that is both an FCM and BD 

that has been admitted to LCH SA as a 

clearing member. The proposed rule 

change would make a similar 

modification to the defined term ‘‘FCM 

Client,’’ which would become ‘‘FCM/BD 

Client.’’ 

Similarly, the proposed rule change 

would modify a number of defined 

terms and add new defined terms that 

relate to the account structure in which 

transactions would be recorded and 

collateral for Cleared Swaps and SBS 

would be held. Among other changes, 

the proposed rule change would add a 

new defined term for ‘‘Cleared Swap,’’ 

which would be used to differentiate 

between ‘‘swaps’’ and ‘‘SBS’’ and their 

different account structures and add 

new defined terms for ‘‘Cleared Swaps 

Customer’’ and ‘‘Cleared Swaps 

Customer Collateral.’’ Overall, these 

changes would establish three account 

structures: (i) A separate account 

structure for Cleared Swaps; (ii) a 

separate account structure for SBS; and 

(iii) an account structure in which an 

FCM/BD Clearing Member that is both 

an FCM and a BD may elect to clear and 

hold margin for FCM/BD Cleared 

Transactions that are SBS for FCM/BD 

Clients on a commingled basis with 

Cleared Swaps.6

Moreover, the proposed rule change 

would amend certain terms with respect 

to legal jurisdictions to reflect the 

availability of clearing SBS for U.S. 

clients. Specifically, the proposed rule 

change would modify the term ‘‘NonU.S. CCM’’ to mean, when used in the 

context of an Original Transaction, a 

CCM that has its residence in, is 

organized under the laws of, or has its 

principal place of business located in, a 

jurisdiction other than the United 

States, its territories or possessions and 

is not a registered BD or FCM. Similarly, 

the proposed rule change would modify 

the term ‘‘U.S. CCM Client’’ to mean a 

Client of an FCM or a BD or any Client 

that has its residence in, is organized 

under the laws of, or has its principal 

place of business located in the United 

States, its territories or possessions. 

Finally, the proposed rule change 

would make clarifying and conforming 

changes to other defined terms, and 

other Articles of Title I of the Rule Book, 

to reflect these changes. These changes 

would update references to Clearing 

Members to apply them to FCM/BD 

Clearing Members instead of just FCM 

Clearing Members. 

ii. Title II and Title III 

The proposed rule change would next 

amend Title II and Title III of the Rule 

Book, which relate to the requirements 

applicable to LCH SA’s Clearing 

Members and LCH SA’s clearing 

operations. First, the proposed rule 

change would amend Article 2.1.1.2 of 

the Rule Book to provide that, without 

prejudice to the membership 

requirements set out in the CDS 

Clearing Rules and applicable law, both 

FCMs and BDs are eligible to become 

FCM/BD Clearing Members. Second, the 

proposed rule change would amend 

Article 2.2.3.1 to define a BD’s ‘‘net 

capital’’ as its net capital as provided in 

SEC Rule 15c3–1. 

The proposed rule change would also 

make conforming changes throughout 

Title II and in Article 3.1.10.9 of Title 

III to apply them to an FCM/BD Clearing 

Member instead of just an FCM Clearing 

Member. These changes would update 

references to Clearing Members to apply 

them to FCM/BD Clearing Members 

instead of just FCM Clearing Members. 

iii. Title IV 

The proposed rule change would also 

amend Title IV regarding risk 

management, specifically, Article 

4.2.2.5, which relates to the return of 

excess collateral. Under Article 4.2.2.5 

as revised, if (i) the FCM/BD Margin 

Balance of an FCM/BD Client Financial 

Account exceeds the relevant FCM/BD 

Client Margin Requirement prior to the 

Morning Call or (ii) the value of the 

Collateral attributed to the FCM/BD 

Buffer Financial Account exceeds the 

FCM/BD Client Collateral Buffer 

Threshold, then LCH SA would treat the 

excess as follows. If the excess is related 

to Cleared Swaps, it would be 

reclassified as FCM/BD Swaps 

Unallocated Client Excess Collateral, 

and thereafter may be returned to the 

FCM/BD Clearing Member upon request 

in the conditions set out in Section 3 of 

the Procedures, subject to Article 6.2.5 

of the Rule Book. If the excess is related 

to SBS (excluding SBS that are held in 

the FCM/BD Swaps Client Account 

Structure as Cleared Swaps, as 

described below), it would be 

reclassified as FCM/BD SBS Client 

Excess Collateral, and thereafter may be 

returned to the FCM/BD Clearing 

Member upon request in the conditions 

set out in Section 3 of the Procedures, 

subject to Article 6.2.5 of the Rule Book. 

The proposed rule change would also 

make conforming changes throughout 

Title IV to apply the articles to an FCM/ 

BD Clearing Member instead of just an 

FCM Clearing Member. These changes 

would update references to Clearing 

Members to apply them to FCM/BD 

Clearing Members instead of just FCM 

Clearing Members. 

iv. Title V 

The proposed rule change next would 

amend Title V, regarding CDS Client 

Clearing Services provided by a CCM. 

Here the proposed rule change would 

amend Article 5.1.1.2 to permit LCH 

SA’s Clearing Members to submit for 

clearing SBS on behalf of their U.S. 

clients. Currently, Article 5.1.1.2 

prohibits a Non-U.S. Clearing Member 

from offering client clearing services to 

any U.S. client with respect to SBS and 

any U.S. Clearing Member from offering 

client clearing services to any client 

with respect to SBS. The proposed rule 

change would delete this provision. 

The proposed rule change also would 

amend another provision of Article 

5.1.1.2 that currently prohibits a 

Clearing Member from offering clearing 

services to any U.S. client (other than an 

affiliate of the Clearing Member) with 

respect to an Original Transaction that 

is not SBS, unless the Clearing Member 

meets the specified conditions. As 

amended, this provision would prohibit 

a Clearing Member from offering 

clearing services to any U.S. client, 

other than an affiliate of the Clearing 

Member, with respect to swaps and 

SBS, unless the Clearing Member (i) is 

an FCM/BD and (ii) has provided LCH 

SA with an opinion of counsel 

confirming that the provision of clearing 

services would not be contrary to 

applicable law. 

v. Title VI 

The proposed rule change would 

amend Title VI, regarding FCM/BD 

client clearing. First, Article 6.1.1.2(vi) 

currently prohibits an FCM Clearing 

Member from providing CDS Client 

Clearing Services (defined as clearing 

services in respect of CDS and/or Index 

Swaptions provided by a Clearing 

Member to its Clients) to any client. The 

proposed rule change would delete this 

prohibition. 

The proposed rule change next would 

amend Article 6.2.1.1, which currently 

specifies the account structure that LCH 

SA must open and maintain for each 

FCM Clearing Member that provides 

client clearing services for swaps. The 

proposed rule change would amend this 

article so that it specifies the client 

account structure for an FCM/BD 

Clearing Member providing client 

clearing services for swaps and SBS. 

Thus, the proposed rule change would 


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7 In furtherance of this change, the proposed rule 

change also would amend Article 6.2.2.1, which 

relates to the establishment of trade accounts, to 

require LCH SA to open FCM/BD SBS Client Trade 

Accounts for SBS Customers. 

8 In furtherance of this change, the proposed rule 

change also would amend Article 6.2.3.1, which 

relates to the establishment of client margin 

accounts, to require LCH SA to open FCM/BD SBS 

Client Margin Accounts for SBS Customers. 

Similarly, the proposed rule change would amend 

Article 6.2.3.2 to provide that FCM/BD Cleared 

Transactions (i) registered in an FCM/BD Swaps 

Client Trade Account for a Cleared Swaps Customer 

will be allocated to the corresponding FCM/BD 

Cleared Swaps Client Margin Account and (ii) 

registered in an FCM/BD SBS Client Trade Account 

for an SBS Customer will be allocated to the 

corresponding FCM/BD SBS Client Margin 

Account, for the purpose of the determination of the 

Open Positions and NPV Payment Requirements 

attributable to such FCM/BD Client. 

9 In furtherance of this change, the proposed rule 

change also would amend Article 6.2.4.1, which 

relates to the establishment of Client Financial 

Accounts and related accounts, to require LCH SA 

to open FCM/BD SBS Client Financial Accounts for 

SBS Customers, in which LCH SA will record the 

value of Collateral provided by the FCM/BD 

Clearing Member in respect of each such SBS 

Customer’s Open Positions in SBS. 

10 In furtherance of this change, the proposed rule 

change also would amend Article 6.2.4.1, which 

relates to the establishment of Client Financial 

Accounts and related accounts, to require LCH SA 

to open an FCM/BD SBS Client Excess Collateral 

Financial Account for SBS Customers, in which 

LCH SA will record the value of FCM/BD SBS 

Client Excess Collateral. 

11 In furtherance of this change, the proposed rule 

change also would amend Article 6.2.4.1, which 

relates to the establishment of Client Financial 

Accounts and related accounts, to require LCH SA 

to open an FCM/BD SBS Buffer Financial Account 

for SBS Customers, in which LCH SA will record 

the value of Collateral provided by the FCM/BD 

Clearing Member as FCM/BD SBS Client Collateral 

Buffer. 

12 In furtherance of this change, the proposed rule 

change also would amend Article 6.2.4.1, which 

relates to the establishment of Client Financial 

Accounts and related accounts, to require LCH SA 

to open FCM/BD SBS Client Collateral Accounts for 

SBS Customers, in which LCH SA will record the 

value of Collateral held by LCH SA in the other 

accounts listed in Article 6.2.1.1(ii) (such as the 

FCM/BD SBS Client Financial Account and FCM/ 

BD SBS Client Excess Collateral Financial 

Account). 

13See Portfolio Margin Order, 77 FR 75211. 

14 7 U.S.C. 1a(18). 

add a new subsection (ii) that specifies 

the accounts that would make up the 

FCM/BD SBS Client Account Structure. 

This structure would mirror the 

structure applicable to swaps. 

Thus, under the proposed rule 

change, Article 6.2.1.1(i) would set forth 

the required account structure for an 

FCM (which may also be a BD) with 

respect to any Cleared Swaps, which 

would include: 

• An FCM/BD Swaps Client Trade 

Account for each Cleared Swaps 

Customer; 

• An FCM/BD Swaps Client Margin 

Account for each Cleared Swaps 

Customer; 

• An FCM/BD Swaps Client Financial 

Account for each Cleared Swaps 

Customer; 

• An FCM/BD Swaps Unallocated 

Client Collateral Financial Account; 

• An FCM/BD Swaps Buffer Financial 

Account; and 

• An FCM/BD Swaps Client 

Collateral Account. 

Likewise, Article 6.2.1.1(ii) would set 

forth the required account structure for 

a BD (which may also be an FCM) with 

respect to any SBS (excluding SBS that 

are permitted to be held in an account 

with Cleared Swaps), which would 

include: 

• An FCM/BD SBS Client Trade 

Account for each SBS Customer; 7

• An FCM/BD SBS Client Margin 

Account for each SBS Customer; 8

• An FCM/BD SBS Client Financial 

Account for each SBS Customer; 9

• An FCM/BD SBS Client Excess 

Collateral Financial Account; 10

• An FCM/BD SBS Buffer Financial 

Account; 11 and 

• An FCM/BD SBS Client Collateral 

Account.12

Moreover, the proposed rule change 

would add a new Article 6.2.1.1(iii) to 

provide that an FCM/BD Clearing 

Member that is both an FCM and a BD 

may elect to clear and hold margin for 

FCM/BD Cleared Transactions that are 

SBS for FCM/BD Clients in the FCM/BD 

Swaps Client Account Structure on a 

commingled basis with Cleared Swaps, 

and margin such combined positions on 

a portfolio basis in compliance with 

Applicable Laws.13 This provision 

would be subject to the condition that 

each FCM/BD Client participating in the 

portfolio margining must be an eligible 

contract participant as defined in 

Section 1a(18) of the Commodity 

Exchange Act.14 Upon such election, 

FCM/BD Cleared Transactions that are 

SBS would be included as Cleared 

Swaps and maintained in the FCM/BD 

Swaps Client Account Structure. 

The proposed rule change also would 

add a new article regarding the return of 

excess collateral. Under new Article 

6.2.5.2, an FCM/BD Clearing Member is 

not permitted to maintain any FCM/BD 

Client Excess Collateral on a day-to-day 

basis with respect to SBS, but may hold 

FCM/BD Client Excess Collateral on an 

intraday basis. LCH SA would be 

required to transfer the value of any 

FCM/BD Client Excess Collateral that is 

reflected in any FCM/BD SBS Client 

Financial Account of the FCM/BD 

Clearing Member prior to the Morning 

Call to the FCM/BD Clearing Member’s 

FCM/BD SBS Client Excess Collateral 

Financial Account. In addition, new 

Article 6.2.5.2(iv) would require, among 

other things, that LCH SA hold FCM/BD 

SBS Client Excess Collateral in the 

FCM/BD SBS Client Excess Collateral 

Financial Account for the benefit of 

FCM/BD Clearing Member’s FCM/BD 

Clients that are SBS customers as a class 

in accordance with SEC regulations and 

Applicable Law and that upon the 

request of an FCM/BD Clearing Member, 

LCH SA would return FCM/BD SBS 

Client Excess Collateral to such FCM/ 

BD Clearing Member. 

The proposed rule change also would 

amend Article 6.2.6.1, which currently 

requires an FCM Clearing Member to 

collect collateral from each client in 

respect of such client’s open positions 

in an amount at least equal to the greater 

of (i) the amount required by LCH SA 

for the FCM Client Margin Account for 

such client or (ii) such higher amount as 

required in Section 2 of the Procedures. 

The proposed rule change would amend 

this Article to apply it to FCM/BD 

Clearing Members and to add a 

corresponding provision for client open 

positions in SBS in an amount at least 

equal to the amount required by LCH 

SA for the FCM/BD SBS Client Margin 

Accounts. 

Finally, the proposed rule change 

would make conforming changes 

throughout Title VI by updating 

references to Clearing Members to 

ensure that the articles apply to an 

FCM/BD Clearing Member instead of 

just an FCM Clearing Member. 

vi. Appendix 

Appendix 1 of the Rule Book 

describes LCH SA’s CDS Default 

Management Process. The proposed rule 

change would amend the defined term 

‘‘Transaction Categories,’’ which 

currently sets out the different 

categories of transactions that LCH SA 

clears. The proposed rule change would 

amend the definition of ‘‘Transaction 

Categories’’ to include ‘‘Single Name 

Cleared Transactions.’’ This change 

would help ensure that LCH SA’s 

default management process applies to 

SBS. 

The proposed rule change also would 

amend Clause 3.3 of Appendix 1, which 

sets out the applicable U.S. law and 

regulation that LCH SA would act in 

accordance with in carrying out the CDS 

Default Management Process, such as 

the Exchange Act and SEC regulations. 

The proposed rule change would add to 

Clause 3.3 a reference to the new 

defined term ‘‘SIPC’’ in Section 1.1.1 of 

the Rule Book, such that LCH SA would 

act in accordance with SIPC in carrying 

out the CDS Default Management 

Process, in addition to the other U.S. 

laws and regulations currently listed in 

Clause 3.3. Under the proposed rule 

change, ‘‘SIPC’’ would be defined as the 


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Securities Investor Protection 

Corporation or any successor thereto. 

The proposed rule change would 

revise Clause 5.4, which relates to 

competitive bidding in a default 

auction. Currently under Clause 5.4, all 

Non-Defaulting Clearing Members are 

required to participate in Competitive 

Bidding for each Auction Package 

notwithstanding that any NonDefaulting Clearing Member may not 

have registered within its Account 

Structure a Cleared Transaction of the 

type included in the relevant 

Transaction Category for an Auction 

Package, subject to certain exceptions. 

As proposed to be revised, under Clause 

5.4 a Non-Defaulting Clearing Member 

that is a BD but not an FCM would not 

be required to participate in 

Competitive Bidding for an Auction 

Package containing any Cleared Swaps 

and a Non-Defaulting Clearing Member 

that is an FCM but not a BD would not 

be required to participate in 

Competitive Bidding for an Auction 

Package containing any SBS. 

The proposed rule change also would 

make conforming changes throughout 

Appendix 1 to apply Appendix 1 to an 

FCM/BD Clearing Member instead of 

just an FCM Clearing Member. 

Specifically, references to Clearing 

Members would be updated to apply 

them to FCM/BD Clearing Members 

instead of just FCM Clearing Members. 

B. Clearing Supplement 

Similar to some of the changes to the 

Rule Book discussed above, the 

proposed rule change would make 

conforming changes to apply the 

Clearing Supplement to an FCM/BD 

Clearing Member instead of just an FCM 

Clearing Member. These changes would 

update references to Clearing Members 

to apply them to FCM/BD Clearing 

Members instead of just FCM Clearing 

Members. 

C. Procedures 

The proposed rule change would 

amend Sections 2, 3, 4, and 5 of the 

Procedures. 

i. Section 2 

Similar to the changes to the Rule 

Book and Clearing Supplement 

discussed above, in Section 2 of the 

Procedures, the proposed rule change 

would make conforming changes to 

apply Section 2 to an FCM/BD Clearing 

Member instead of just an FCM Clearing 

Member. These changes would update 

references to Clearing Members to apply 

them to FCM/BD Clearing Members 

instead of just FCM Clearing Members. 

ii. Section 3 

Similar to the changes to the Rule 

Book and Clearing Supplement 

discussed above, in Section 3 of the 

Procedures, the proposed rule change 

would make conforming changes to 

apply Section 3 to an FCM/BD Clearing 

Member instead of just an FCM Clearing 

Member. These changes would update 

references to Clearing Members to apply 

them to FCM/BD Clearing Members 

instead of just FCM Clearing Members. 

In addition, the proposed rule change 

would amend Section 3.3(b), which 

relates to the Collateral Account 

structure, to add a reference to the FCM/ 

BD SBS Client Collateral Account. In 

this account LCH SA would record the 

Collateral held by LCH SA for the 

benefit of an FCM/BD Clearing 

Member’s SBS Customers with respect 

to SBS. The value in this account would 

be further divided among and recorded 

in three separate accounts: (i) The FCM/ 

BD SBS Client Financial Account; (ii) 

the FCM/BD SBS Buffer Financial 

Account; and (iii) the FCM/BD SBS 

Client Excess Collateral Financial 

Account. 

The proposed rule change would 

amend Section 3.7, which relates to 

collection of Euro denominated cash 

collateral. As described in Section 

3.7(a), LCH SA performs Collateral Calls 

using TARGET2 Accounts opened in its 

name. The proposed rule change would 

amend Section 3.7(a) to provide that 

LCH SA will perform Collateral Calls 

with respect to the Clients of a Clearing 

Member using a TARGET2 Account. As 

described in the proposed amendment, 

LCH SA would use this TARGET2 

Account to make Collateral Calls in 

relation to the Client Margin 

Requirements with respect to SBS 

(excluding SBS held in the FCM/BD 

Swaps Client Account Structure) and 

FCM/BD Client Collateral Buffer 

Threshold of each FCM/BD Clearing 

Member. 

Similarly, the proposed rule change 

would amend Section 3.7(b), which 

relates to the TARGET2 Accounts that a 

Clearing Member must hold. Section 

3.7(b) currently requires that a Clearing 

Member hold two TARGET2 Accounts, 

one related to house margin and the 

other related to client margin. The 

proposed rule change would add to 

these two accounts a third account, 

relating to client margin with respect to 

SBS. Thus, as revised, Section 3.7(b) 

would require that an FCM/BD Clearing 

Member hold three TARGET2 Accounts 

for purposes of Collateral Calls in 

respect of (i) its FCM/BD House Margin 

Requirement and FCM/BD House Excess 

Collateral Threshold, (ii) its Client 

Margin Requirements with respect to 

Cleared Swaps and FCM/BD Client 

Collateral Buffer Threshold, and (iii) its 

Client Margin Requirements with 

respect to SBS (excluding SBS that are 

held in the FCM/BD Swaps Client 

Account Structure) and FCM/BD Client 

Collateral Buffer Threshold. 

The proposed rule change next would 

amend Section 3.7(g), which relates to 

the return of Euro denominated cash 

collateral. Currently, Section 3.7(g)(iv) 

allows a Clearing Member to request 

LCH SA to return some or all FCM 

Unallocated Client Excess Collateral in 

the form of Euro denominated Cash 

Collateral provided that the requested 

amount does not exceed the FCM 

Unallocated Client Excess Collateral 

recorded in its Client Collateral 

Account. The proposed rule change 

would amend Section 3.7(g)(iv) to 

clarify that it applies to FCM/BD 

Clearing Members, not just FCM 

Clearing Members. The proposed rule 

change also would add to Section 3.7(g) 

a new paragraph (v), which would 

mirror paragraph (iv) of Section 3.7(g) 

described above, but it would apply to 

excess collateral related to SBS. Thus, 

under new Section 3.7(g)(v), a Clearing 

Member may also request LCH SA to 

return some or all FCM/BD SBS Client 

Excess Collateral in the form of Euro 

denominated Cash Collateral provided 

that the requested amount does not 

exceed the FCM/BD SBS Client Excess 

Collateral recorded in its FCM/BD SBS 

Client Collateral Account. 

The proposed rule change also would 

amend Section 3.8, which sets out the 

multi-currency accounts in which LCH 

SA holds non-Euro Collateral provided 

by Clearing Members to meet house and 

client margin requirements. Currently, 

Section 3.8(a) requires that LCH SA 

have two multi-currency accounts for 

holding non-Euro Cash Collateral 

provided by Clearing Members in 

respect of their clients. The proposed 

rule change would add a third account, 

requiring that LCH SA have, with 

respect to Clients of a Clearing Member, 

a multi-currency account used to credit 

non-Euro, non-USD Cash Collateral 

which is transferred by an FCM/BD 

Clearing Member to be recorded in its 

FCM/BD SBS Client Collateral Account. 

This account would form part of the 

LCH SBS Client Segregated Depository 

Account for purposes of the FCM/BD 

CDS Clearing Regulations. 

Similarly, Section 3.8(b) currently 

requires that LCH SA have two USD 

cash accounts for holding USD Cash 

Collateral provided by Clearing 

Members in respect of their clients. The 

proposed rule change would add a third 

account, requiring that LCH SA have, 


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15 17 CFR 240.15c3–3(p). 

with respect to Clients of a Clearing 

Member, an account used to credit USD 

Cash Collateral which is transferred by 

FCM/BD Clearing Members to be 

recorded in their FCM/BD SBS Client 

Collateral Account. This account would 

form part of the LCH SBS Client 

Segregated Depository Account for 

purposes of the FCM/BD CDS Clearing 

Regulations. 

With respect to the return of excess 

collateral, the proposed rule change 

would amend Section 3.8(h) and (i), to 

provide for the return of excess 

collateral in respect of SBS. These 

amendments would mirror the 

provisions currently applicable to 

swaps. 

Finally, the proposed rule change 

would amend Section 3.18, relating to 

cash payments and variation margin 

transfers. Currently, Section 3.18(c) lists 

the accounts that LCH SA uses when 

making or receiving Cash Payments 

and/or Variation Margin Collateral 

Transfer obligations in USD. The 

proposed rule change would add to this 

list a cash account used to debit or 

credit USD to satisfy Cash Payments 

and/or Variation Margin Collateral 

Transfer obligations in USD with 

respect to all relevant Client Cleared 

Transactions of each FCM/BD Clearing 

Member that are SBS (excluding SBS 

that are held in the FCM/BD Swaps 

Client Account Structure). 

iii. Section 4 

Section 4 sets out certain 

requirements that a transaction must 

satisfy to be eligible for clearing at LCH 

SA. Currently, Section 4.1 provides that 

(i) in respect of an FCM Client, a U.S. 

CCM Client of a Non-U.S. CCM or a 

CCM Client of a U.S. CCM, the Original 

Transaction may not be a Single Name 

CDS or any other SBS identified as such 

in a Clearing Notice; and (ii) in respect 

of a Non-U.S. CCM Client, the Original 

Transaction may not be a Single Name 

CDS or any other SBS identified as such 

in a Clearing Notice unless such 

transaction is cleared through a NonU.S. CCM. The proposed rule change 

would delete Section 4.1, thus 

permitting Clearing Members to submit 

SBS to LCH SA for clearing on behalf of 

U.S. Clients. 

iv. Section 5 

Section 5 of the Procedures specifies 

LCH SA’s CDS Clearing Operations 

Procedures and includes numerous 

references to ‘‘FCM Clearing Members.’’ 

Similar to the changes to the Rule Book 

and Clearing Supplement discussed 

above, the proposed rule change would 

change these references from ‘‘FCM 

Clearing Members’’ to ‘‘FCM/BD 

Clearing Members.’’ This would help 

ensure that the Clearing Operations 

Procedures in Section 5 apply to FCM/ 

BD Clearing Members instead of just 

FCM Clearing Members. 

D. Clearing Regulations 

The proposed rule change also would 

amend LCH SA’s CDS Clearing 

Regulations, which impose certain 

obligations on LCH SA’s Clearing 

Members and is divided into 

Regulations 1 through 6, as well as a 

Definitions section appearing before 

Regulation 1. The proposed rule change 

would first update certain of the defined 

terms found in the Definitions section to 

reflect some of the changes discussed 

above. For example, the proposed rule 

change would amend a number of 

defined terms to use the term ‘‘Cleared 

Swaps Customer,’’ which, as discussed 

above, the proposed rule change would 

add to the Rule Book. The proposed rule 

change would also add the defined term 

‘‘LCH SBS Client Segregated Depository 

Account,’’ which, as discussed above, 

the proposed rule change would 

reference in Section 3 of the Procedures. 

In Regulation 2 (Depository 

Accounts), the proposed rule change 

would set out the relevant account 

structure for SBS. Under Regulation 2 as 

revised, each FCM/BD Clearing Member 

would be required to establish and 

maintain an FCM/BD SBS Client 

Segregated Depository Account on 

behalf of its SBS Customers in 

accordance with applicable provisions 

of the Exchange Act and SEC 

regulations. An FCM/BD Clearing 

Member would be required to maintain 

the FCM/BD SBS Client Segregated 

Depository Account with a Bank in 

accordance with the Exchange Act and 

SEC Regulations and the FCM/BD 

Clearing Member would be allowed to 

commingle assets of all of its SBS 

Customers held in that account in a 

single omnibus account established and 

maintained in accordance with SEC 

regulations. LCH SA would designate 

the FCM/BD SBS Client Segregated 

Depository Account maintained by each 

FCM/BD Clearing Member as a ‘‘Special 

Reserve Bank Account for the Exclusive 

Benefit of the Cleared Security-Based 

Swap Customers’’ of the FCM/BD 

Clearing Member as provided in 

Exchange Act Rule 15c3–3(p).15

Similarly, under Regulation 2 as 

revised, LCH SA would be required to 

establish and maintain a LCH SBS 

Client Segregated Depository Account 

on behalf of the SBS Customers of FCM/ 

BD Clearing Members, in accordance 

with applicable provisions of the 

Exchange Act and SEC regulations. LCH 

SA would be required to maintain the 

LCH SBS Client Segregated Depository 

Account with a Bank in accordance 

with the Exchange Act and SEC 

regulations and LCH SA would be 

allowed to commingle assets of all of the 

SBS Customers in that account in a 

single omnibus account established and 

maintained in accordance with SEC 

regulations. Regulation 2 would further 

require that LCH SA hold in the LCH 

SBS Client Segregated Depository 

Account all Collateral that is deposited 

by FCM/BD Clearing Members in 

connection with SBS cleared on behalf 

of SBS Customers (other than Collateral 

provided to satisfy the Contribution 

Requirement of such FCM/BD Clearing 

Members). Moreover, Regulation 2 

would require that LCH SA maintain the 

LCH SBS Client Segregated Depository 

Account separately from any and all 

assets of the FCM/BD Clearing 

Members, or any other assets that LCH 

SA is holding for clients (other than SBS 

Customers) and that the account contain 

no assets other than Collateral deposited 

by FCM/BD Clearing Members in 

connection with the clearing of SBS on 

behalf of their SBS Customers. Finally, 

LCH SA would designate the LCH SBS 

Client Segregated Depository Account as 

a ‘‘Special Clearing Account for the 

Exclusive Benefit of the Cleared 

Security-Based Swaps Customers’’ of 

the FCM/BD Clearing Member for 

purposes of the Exchange Act and SEC 

Regulations. 

The proposed rule change also would 

update Regulation 3 of the CDS Clearing 

Regulations (Collateral), to apply to the 

LCH SBS Client Segregated Depository 

Account. Under Regulation 3 as revised, 

securities or cash held in the LCH SBS 

Client Segregated Depository Account 

would be subject to a security interest 

in accordance with Regulation 5 and no 

collateral deposited in the LCH SBS 

Client Segregated Depository Account 

may be applied on or in respect of 

payment or satisfaction of the FCM/BD 

Clearing Member’s liabilities to LCH SA. 

Similarly, the proposed rule change 

would update Regulation 4 (Transfer) to 

apply to BDs, SBS, and SBS Customers. 

Currently, Regulation 4 requires that, if 

an FCM Clearing Member is a Defaulting 

Clearing Member, any action by LCH SA 

pursuant to the Rule Book (including 

the CDS Default Management Process) 

must be taken in compliance with the 

Commodity Exchange Act and CFTC 

regulations and applicable bankruptcy 

laws regarding the liquidation or 

transfer of FCM Cleared Transactions 

carried by an FCM on behalf of its 

clients. Under Regulation 4 as revised, 

if an FCM/BD Clearing Member is a 


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16CFTC Letter No 19–17 of July 10, 2019 

(‘‘Advisory and Time-Limited No-Action Relief 

with Respect to the Treatment of Separate Accounts 

by Futures Commission Merchants’’). 

Defaulting Clearing Member, any action 

taken by LCH SA pursuant to the Rule 

Book (including the CDS Default 

Management Process) must be taken in 

compliance with the Commodity 

Exchange Act and CFTC regulations or 

the Exchange Act and SEC regulations, 

as applicable, and applicable 

bankruptcy laws regarding the 

liquidation or transfer of Cleared Swaps 

carried by an FCM on behalf of its 

clients or SBS carried by a BD on behalf 

of its SBS Customers. Moreover, under 

Regulation 4 as revised, to the extent 

any transfer by an FCM/BD Clearing 

Member of open contracts between its 

Proprietary Account and accounts of its 

FCM/BD Clients, upon an FCM/BD 

Client default, is permitted pursuant to 

the Rule Book (including the CDS 

Default Management Process) and the 

Procedures, such transfer must be made 

subject to applicable provisions of the 

Commodity Exchange Act and CFTC 

regulations or the Exchange Act and 

SEC regulations, as applicable, 

regarding segregation of assets. 

Currently, this provision only applies to 

the Commodity Exchange Act and CFTC 

regulations. 

The proposed rule change also would 

update Regulation 5 of the CDS Clearing 

Regulations (Security Interest) to apply 

to BDs, SBS, and SBS Customers. 

Currently, Regulation 5 provides that 

each FCM Clearing Member grants LCH 

SA a first security interest in and a first 

priority and unencumbered first lien 

upon any and all cash, securities, 

receivables, rights and intangibles and 

any other Collateral or assets deposited 

with or transferred to LCH SA, or 

otherwise held by LCH SA, including all 

property deposited in an LCH 

Proprietary Depository Account and in 

an LCH Cleared Swaps Client 

Segregated Depository Account, as 

security for unconditional payment and 

satisfaction of the obligations and 

liabilities of the FCM Clearing Member 

to LCH SA. The proposed rule change 

would amend this provision so that it 

applies to FCM/BD Clearing Members 

and the LCH SBS Client Segregated 

Depository Account. The proposed rule 

change also would clarify that in no 

event shall LCH SA’s security interest in 

the Collateral in an LCH Cleared Swaps 

Client Segregated Depository Account or 

an LCH SBS Client Segregated 

Depository Account held on behalf of 

the FCM/BD Clearing Member’s Clients 

be exercised to satisfy any obligations or 

liabilities of such FCM/BD Clearing 

Member other than in connection with 

obligations or liabilities relating to 

Cleared Swaps cleared by such FCM/BD 

Clearing Member on behalf of its 

Cleared Swaps Customers or relating to 

SBS cleared by such FCM/BD Clearing 

Member on behalf of its SBS Customers. 

Currently, this provision only applies to 

LCH Cleared Swaps Client Segregated 

Depository Account and swaps clients. 

Finally, similar to the changes to the 

Rule Book, Clearing Supplement, and 

Procedures discussed above, throughout 

the Clearing Regulations the proposed 

rule change would make conforming 

changes to apply the Clearing 

Regulations to an FCM/BD Clearing 

Member instead of just an FCM Clearing 

Member. These changes would update 

references to Clearing Members to apply 

them to FCM/BD Clearing Members 

instead of just FCM Clearing Members, 

including changing the title of the 

document to the ‘‘FCM/BD CDS 

Clearing Regulations.’’ The proposed 

rule change would similarly add 

references to the Exchange Act when 

discussing applicable law. 

E. Additional Changes Unrelated to U.S. 

Client Clearing 

In addition to the changes discussed 

above related to U.S. client clearing, the 

proposed rule change would make 

certain other changes not directly 

related to that initiative. First, the 

proposed rule change would amend 

Appendix 1 of the Rule Book (CDS 

Default Management Process). As 

discussed above, Appendix 1 of the 

Rule Book describes LCH SA’s CDS 

Default Management Process. In Clause 

5.4.4 (Minimum Bid Size), the 

amendment would revise the current 

formula for LCH SA’s calculation of the 

Minimum Bid Size for each NonDefaulting Clearing Member by 

incorporating a 100% maximum cap, 

thus clarifying that a Non-Defaulting 

Clearing Member would never be 

required to bid for more than 100% of 

the relevant Auction Package in a 

default auction. This proposed change 

would also be consistent with existing 

Clause 5.4.6 (Bids in excess of the 

Minimum Bid Size), which prohibits a 

Non-Defaulting Clearing Member from 

submitting Bid(s) whose Bid Size(s), 

alone or in aggregate, exceed 100% of 

the relevant Auction Package. The 

proposed rule change also would revise 

Clause 5.9.1 for LCH SA’s recalculation 

of Minimum Bid Sizes for Residual 

Auction Packages in a potential second 

round of Competitive Bidding. Under 

existing Clause 5.9.1(i), LCH SA will 

reduce a Non-Defaulting Clearing 

Member’s original Minimum Bid Size as 

calculated in Clause 5.4.4 by an amount 

equal to the Bid Credit, which is the 

percentage difference between the 

Minimum Bid Size and the percentage 

of the aggregate of the Bid Sizes of the 

Non-Defaulting Member’s Initial 

Winning Bids. The proposed rule 

change would provide that such 

recalculation is ‘‘subject to the 

maximum value for the Bid Credit of the 

Minimum Bid Size.’’ 

In Clause 8.1.1 of Appendix 1 of the 

Rule Book, the proposed rule change 

would remove a reference to the Early 

Termination Trigger Date at the end of 

the paragraph. Currently, that paragraph 

provides that upon an Early 

Termination Trigger Date, other 

payment and delivery obligations in 

relation to any Cleared Transactions and 

any other obligations pursuant to the 

CDS Clearing Documentation (including 

Collateral registered in any Collateral 

Accounts and other Collateral 

representing a Clearing Member’s 

Contribution Requirement) shall be 

payable or deliverable on the Early 

Termination Trigger Date and in 

accordance with the provisions of 

Clause 8.1.1. The proposed rule change 

would retain this language but delete 

the reference to the Early Termination 

Trigger Date at the end of the paragraph 

such that the obligations shall be 

payable or deliverable in accordance 

with the provisions of Clause 8.1.1, 

rather than on the Early Termination 

Trigger Date and in accordance with the 

provisions of Clause 8.1.1. This change 

would help to ensure consistency in the 

operation of the Early Termination 

process since all payment and delivery 

obligations in the context of the Early 

Termination process would be made at 

the date and times as set out in the 

provisions of Clause 8.1.1. Thus, this 

change would remove a potential 

inconsistency between the Early 

Termination Trigger Date and the 

provisions of Clause 8.1.1. 

Finally, the proposed rule change 

would amend Regulation 6 of the 

Clearing Regulations to implement 

CFTC Letter No. 19–17.16 Under CFTC 

Letter No. 19–17, a Derivatives Clearing 

Organization may permit a Futures 

Commission Merchant to treat the 

separate accounts of a customer as 

accounts of separate entities subject to 

a number of conditions provided for in 

that letter. Therefore, the proposed rule 

change would amend Regulation 6(e) to 

allow Clearing Members to benefit from 

this no-action relief regarding the 

withdrawal of the Cleared Swaps 

Customer funds by providing that 

references to ‘‘Cleared Swaps Customer’’ 

shall include all Cleared Swaps 

Customers for the same beneficial 


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17 15 U.S.C. 78s(b)(2)(C). 

18 15 U.S.C. 78q–1(b)(3)(F). 

19 17 CFR 240.17Ad–22(e)(1), (e)(18). 

20 15 U.S.C. 78q–1(b)(3)(F). 

21 15 U.S.C. 78q–1(b)(3)(F). 

22 15 U.S.C. 78q–1(b)(3)(F). 

23 15 U.S.C. 78q–1(b)(3)(F). 

owner, unless the Clearing Member 

complies with the relevant conditions 

set out in CFTC Letter No. 19–17. 

III. Discussion and Commission 

Findings 

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

the Commission to approve a proposed 

rule change of a self-regulatory 

organization if it finds that such 

proposed rule change is consistent with 

the requirements of the Act and the 

rules and regulations thereunder 

applicable to such organization.17 For 

the reasons given below, the 

Commission finds that the proposed 

rule change is consistent with Section 

17A(b)(3)(F) of the Act 18 and Rules 

17Ad–22(e)(1) and (e)(18).19

A. Consistency With Section 

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

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

requires, among other things, that the 

rules of LCH SA be designed to promote 

the prompt and accurate clearance and 

settlement of securities transactions 

and, to the extent applicable, derivative 

agreements, contracts, and transactions, 

as well as to assure the safeguarding of 

securities and funds which are in the 

custody or control of LCH SA or for 

which it is responsible.20 As discussed 

in more detail below, the Commission 

finds that the proposed rule change is 

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

the Act.21

As described above, the proposed rule 

change would make a number of 

changes to the Rule Book, Clearing 

Supplement, Procedures, and Clearing 

Regulations to permit LCH SA’s 

Clearing Members to offer client 

clearing services in respect of SBS to 

U.S. clients. Specifically, as discussed 

in Part II.A, the proposed rule change 

would amend the Rule Book to (i) add 

and update defined terms; (ii) modify 

the membership requirements 

applicable to Clearing Members; (iii) 

remove provisions that prohibit Clearing 

Members from offering clearing services 

to U.S. clients with respect to SBS; (iv) 

permit broker-dealers to become 

Clearing Members and update 

provisions to apply them to Clearing 

Members that are broker-dealers; (v) 

establish the account structure for 

Clearing Members clearing SBS on 

behalf of U.S. clients, including the 

treatment of collateral posted by 

Clearing Members in respect of client 

positions in SBS; and (vi) amend the 

Appendix to apply relevant provisions 

of the CDS Default Management Process 

to SBS. The Commission believes these 

changes would facilitate clearing of SBS 

for U.S. clients by establishing the legal 

and operational framework for Clearing 

Members to clear SBS on behalf of U.S. 

clients, thereby promoting the prompt 

and accurate clearance and settlement of 

securities transactions by such clients at 

LCH SA. Similarly, the changes with 

respect to collateral posted by Clearing 

Members in respect of client positions 

in SBS would help to ensure that such 

collateral is subject to the provisions of 

LCH SA’s Rule Book regarding the 

protection of collateral, including the 

return of excess collateral, thereby 

helping to assure the safeguarding of 

securities and funds in LCH SA’s 

custody and control. Because the 

changes to the Clearing Supplement 

discussed in Part II.B above would 

further these changes to the Rule Book 

by making conforming changes to apply 

the Clearing Supplement to an FCM/BD 

Clearing Member instead of just an FCM 

Clearing Member, the Commission 

believes the changes to the Clearing 

Supplement also would promote the 

prompt and accurate clearance and 

settlement of securities transactions and 

assure the safeguarding of securities and 

funds in LCH SA’s custody and control. 

As discussed in Part II.C, the 

proposed changes to the Procedures 

would (i) make conforming changes to 

apply them to an FCM/BD Clearing 

Member instead of just an FCM Clearing 

Member; (ii) require that LCH SA and 

Clearing Members establish and use 

certain accounts to hold and transfer 

cash and other collateral for satisfying 

margin requirements in connection with 

client positions in SBS; (iii) establish 

procedures for the return of excess 

collateral related to client positions in 

SBS; and (iv) remove provisions that 

currently prohibit LCH SA from 

accepting SBS transactions in respect of 

U.S. clients. Like the changes to the 

Rule Book and Clearing Supplement, 

the Commission believes these changes 

would facilitate clearing of SBS for U.S. 

clients by establishing the financial 

accounts and operational framework 

needed for clearing client positions in 

SBS and removing provisions that 

currently prohibit LCH SA from 

accepting SBS transactions in respect of 

U.S. clients, thereby promoting the 

prompt and accurate clearance and 

settlement of those securities 

transactions at LCH SA. Moreover, in 

requiring the establishment and use of 

certain accounts to hold and transfer 

cash and other collateral for satisfying 

margin requirements, and in 

establishing procedures for the return of 

excess collateral related to client 

positions in SBS, these proposed 

changes would help to assure the 

safeguarding of securities and funds in 

LCH SA’s custody and control. 

For similar reasons, the Commission 

finds the proposed changes to the 

Clearing Regulations also are consistent 

with Section 17A(b)(3)(F) of the Act.22

Requiring that Clearing Members and 

LCH SA establish accounts with a Bank 

for holding collateral on behalf of SBS 

Customers and requiring that the 

accounts be maintained separately from 

any and all assets of the FCM/BD 

Clearing Members, or any other assets 

that LCH SA is holding for clients (other 

than SBS Customers), should promote 

the safekeeping of SBS Customers’ 

collateral, thereby assuring safeguarding 

of securities and funds in LCH SA’s 

custody and control. Similarly, in 

amending Regulation 3 and Regulation 

5 to clarify that the security interest 

granted to LCH SA applies to FCM/BD 

Clearing Members and the LCH SBS 

Client Segregated Depository Account 

and that no collateral deposited in the 

LCH SBS Client Segregated Depository 

Account may be applied on or in respect 

of payment or satisfaction of any of the 

FCM/BD Clearing Member’s liabilities to 

LCH SA, the Commission believes the 

proposed rule change should help to 

assure that SBS Customers’ collateral is 

not misapplied to satisfy a Clearing 

Member’s liabilities, again assuring the 

safeguarding of securities and funds in 

LCH SA’s custody and control. 

Moreover, amending Regulation 4 to 

require that any action by LCH SA 

pursuant to the Rule Book (including 

the CDS Default Management Process) 

be taken in compliance with the 

Exchange Act and SEC regulations as 

well as applicable bankruptcy laws 

regarding the liquidation or transfer of 

SBS carried by a BD on behalf of its 

clients, should help to assure the 

safekeeping of SBS Customers’ collateral 

after the default of a Clearing Member. 

Finally, making conforming changes to 

apply the Clearing Regulations to an 

FCM/BD Clearing Member instead of 

just an FCM Clearing Member should 

help to assure the applicability of these 

provisions to SBS. 

Finally, the Commission finds the 

other changes unrelated to U.S. client 

clearing, discussed in Part II.E above, 

are also consistent with Section 

17A(b)(3)(F) of the Act.23 Amending 

Appendix 1 of the Rule Book to provide 

that each Non-Defaulting Clearing 

Member would never be required to bid 


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24 15 U.S.C. 78q–1(b)(3)(F). 

25 17 CFR 240.17Ad–22(e)(1). 26 17 CFR 240.17Ad–22(e)(1). 

27 17 CFR 240.17Ad–22(e)(18). 

28 17 CFR 240.17Ad–22(e)(18). 

29 15 U.S.C. 78q–1(b)(3)(F). 

30 17 CFR 240.17Ad–22(e)(1), (e)(18). 

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

32 In approving the proposed rule change, the 

Commission considered the proposal’s impact on 

efficiency, competition, and capital formation. 15 

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

for more than 100% of the relevant 

Auction Package and to remove a 

reference to the Early Termination 

Trigger Date at the end of the paragraph 

would correct existing drafting errors in 

clauses pertaining to the CDS Default 

Management Process. Correcting these 

errors should help to ensure that the 

CDS Default Management Process is 

applied consistently and correctly, 

thereby helping to ensure a smooth 

resolution of Clearing Member defaults. 

This in turn should help to ensure that 

LCH SA continues to operate as normal 

after a Clearing Member default, and 

thus should promote the prompt and 

accurate clearance and settlement of 

transactions. Moreover, in amending 

Regulation 6 of the Clearing Regulations 

to implement CFTC Letter No. 19–17, 

the proposed rule change should allow 

LCH SA’s Clearing Members that are 

FCMs to take advantage of that relief, 

thereby promoting the use of LCH SA’s 

clearing services among such members 

and the prompt and accurate clearance 

and settlement of derivative 

transactions. 

Therefore, for the reasons discussed 

above, the Commission finds that the 

proposed rule change is consistent with 

the Section 17A(b)(3)(F) of the Act.24

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

Rule 17Ad–22(e)(1) requires that LCH 

SA establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to provide for a 

well-founded, clear, transparent, and 

enforceable legal basis for each aspect of 

its activities in all relevant 

jurisdictions.25 The Commission 

believes the changes discussed above 

permitting LCH SA’s Clearing Members 

to submit for clearing SBS on behalf of 

their U.S. clients would establish a wellfounded, clear, transparent, and 

enforceable legal basis for such client 

clearing services. In particular, 

removing current provisions from the 

Rule Book that prohibit Clearing 

Members from offering clearing services 

to U.S. clients with respect to SBS and 

removing provisions from the 

Procedures that prohibit LCH SA from 

accepting SBS transactions in respect of 

U.S. clients, would help ensure that the 

legal basis for providing clearing to U.S. 

clients with respect to SBS is wellfounded. Establishing the account 

structure to be used by Clearing 

Members clearing SBS on behalf of U.S. 

clients and requiring that Clearing 

Members and LCH SA establish 

accounts for holding and transferring 

cash and other collateral on behalf of 

SBS Customers likewise would help 

ensure that the methods for holding and 

transferring such collateral are clear and 

transparent. Amending Appendix 1 of 

the Rule Book to apply the CDS Default 

Management Process to SBS would help 

to ensure the enforceability of the CDS 

Default Management Process with 

respect to SBS, while amending 

Regulation 3 and Regulation 5 of the 

Clearing Regulations to clarify that the 

security interest granted to LCH SA 

applies to FCM/BD Clearing Members 

and the LCH SBS Client Segregated 

Depository Account, and that no 

collateral deposited in the LCH SBS 

Client Segregated Depository Account 

may be applied on or in respect of 

payment or satisfaction of any of the 

FCM/BD Clearing Member’s liabilities to 

LCH SA, would help to ensure the 

enforceability of LCH SA’s security 

interest while protecting SBS customer 

collateral. Finally, amending defined 

terms and provisions throughout the 

Rule Book, Clearing Supplement, 

Procedures, and Clearing Regulations to 

clarify that they apply to BDs and SBS 

would help to ensure that the legal 

bases for applying these provisions to 

BDs and SBS are similarly well-founded 

and clear. 

The Commission believes that the 

other changes unrelated to U.S. client 

clearing, as discussed in Part II.E above, 

would similarly help to ensure that the 

legal basis for LCH SA’s activities is 

well-founded and clear. Amending 

Appendix 1 of the Rule Book to provide 

that each Non-Defaulting Clearing 

Member would never be required to bid 

for more than 100% of the relevant 

Auction Package and to remove a 

reference to the Early Termination 

Trigger Date at the end of the paragraph 

would correct drafting errors in clauses 

pertaining to the CDS Default 

Management Process, thereby helping to 

ensure the clarity of the CDS Default 

Management Process. Amending 

Regulation 6 of the Clearing Regulations 

to implement CFTC Letter No. 19–17 

should help clarify the ability of 

Clearing Members that are FCMs to rely 

on the provisions of such letter. 

Thus, the Commission finds that these 

aspects of the proposed rule change are 

consistent with Rule 17Ad–22(e)(1).26

C. Consistency With Rule 17Ad– 

22(e)(18) 

Rule 17Ad–22(e)(18) requires that 

LCH SA 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, require 

participants to have sufficient financial 

resources and robust operational 

capacity to meet obligations arising from 

participation in the clearing agency, and 

monitor compliance with such 

participation requirements on an 

ongoing basis.27 As discussed above, as 

part of the proposed changes permitting 

LCH SA’s Clearing Members to submit 

for clearing SBS on behalf of their U.S. 

clients, the proposed rule change would 

impose certain requirements on Clearing 

Members who wish to offer clearing to 

U.S. clients. Among other things, 

Clearing Members would be required to 

establish accounts for holding and 

transferring cash and other collateral on 

behalf of SBS Customers and would be 

prohibited from offering clearing 

services to any U.S. Client, other than 

an affiliate of the clearing member, with 

respect to swaps and SBS, unless the 

Clearing Member (i) is an FCM or BD 

and (ii) has provided LCH SA with an 

opinion of counsel confirming that the 

provision of clearing services would not 

be contrary to applicable law. The 

Commission believes these changes 

would establish objective, risk-based, 

and publicly disclosed criteria for 

participation by LCH SA’s Clearing 

Members in client clearing for U.S. 

clients, which should permit fair and 

open access by Clearing Members 

directly and U.S. clients indirectly. 

Thus, the Commission finds that these 

aspects of the proposed rule change are 

consistent with Rule 17Ad–22(e)(18).28

IV. Conclusion 

On the basis of the foregoing, the 

Commission finds that the proposed 

rule change is consistent with the 

requirements of the Act, and in 

particular, with the requirements of 

Section 17A(b)(3)(F) of the Act 29 and 

Rules 17Ad–22(e)(1) and (e)(18).30

It is therefore ordered pursuant to 

Section 19(b)(2) of the Act 31 that the 

proposed rule change (SR–LCH SA– 

2021–001), be, and hereby is, 

approved.32


lotter on DSK11XQN23PROD with NOTICES1
Federal Register / Vol. 86, No. 144 / Friday, July 30, 2021 / Notices 41123 

33 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Capitalized terms used but not defined herein 

have the meanings specified in the Sixth A&R 

Operating Agreement. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.33

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–16232 Filed 7–29–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–92504; File No. SR–ICC– 

2021–017] 

Self-Regulatory Organizations; ICE 

Clear Credit LLC; Notice of Filing of 

Proposed Rule Change Relating to the 

ICE Clear Credit Operating Agreement 

and Governance Playbook 

July 26, 2021. 

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

Securities Exchange Act of 1934 1 and 

Rule 19b–4,2 notice is hereby given that 

on July 20, 2021, ICE Clear Credit LLC 

(‘‘ICE Clear Credit’’ or the ‘‘Clearing 

House’’) filed with the Securities and 

Exchange Commission the proposed 

rule change as described in Items I, II 

and III below, which Items have been 

prepared primarily by ICE Clear Credit. 

The Commission is publishing this 

notice to solicit comments on the 

proposed rule change from interested 

persons. 

I. Clearing Agency’s Statement of the 

Terms of Substance of the Proposed 

Rule Change 

The principal purpose of the 

proposed rule change is to amend and 

restate ICE Clear Credit’s Fifth Amended 

and Restated Operating Agreement 

(such amended and restated document, 

the Sixth Amended and Restated 

Operating Agreement or ‘‘Sixth A&R 

Operating Agreement’’) to (i) reduce the 

number of managers on its Board of 

Managers (the ‘‘Board’’) designated by 

its Parent, ICE US Holding Company 

L.P., (‘‘ICE-designated managers’’), and 

(ii) remove outdated provisions and 

make certain other non-substantive 

amendments.3 ICE Clear Credit proposes 

corresponding changes to the 

Governance Playbook to update the 

composition of the Board and to make 

other non-substantive amendments. 

These revisions do not require any 

changes to the ICE Clear Credit Clearing 

Rules (the ‘‘Rules’’). 

II. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

In its filing with the Commission, ICE 

Clear Credit included statements 

concerning the purpose of and basis for 

the proposed rule change, securitybased swap submission, or advance 

notice and discussed any comments it 

received on the proposed rule change, 

security-based swap submission, or 

advance notice. The text of these 

statements may be examined at the 

places specified in Item IV below. ICE 

Clear Credit has prepared summaries, 

set forth in sections (A), (B), and (C) 

below, of the most significant aspects of 

these statements. 

(A) Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

(a) Purpose 

ICE Clear Credit proposes to adopt the 

Sixth A&R Operating Agreement, which 

would amend and restate its Fifth 

Amended and Restated Operating 

Agreement, and to make corresponding 

changes to the Governance Playbook. 

The proposed revisions are described in 

detail as follows. 

I. Sixth A&R Operating Agreement 

ICE Clear Credit is proposing to adopt 

the Sixth A&R Operating Agreement to 

reduce the number of ICE-designated 

managers on the Board and to remove 

outdated provisions and make other 

non-substantive amendments. 

Board of Managers 

Proposed amendments to Section 

3.02(a)(i) would reduce the number of 

Parent Independent Managers (those 

independent managers designated by 

the Parent with no material 

relationships with ICE Clear Credit or its 

affiliates) from four to three managers. It 

would also remove all references to 

names of such Parent Independent 

Managers, as such persons have been 

appointed and need not be named in the 

operating agreement. Section 3.02(a)(ii) 

would reduce the number of Parent 

Non-Independent Managers (those nonindependent managers designated by 

the Parent) from three to two managers. 

It would also similarly remove all 

references to names of such Parent NonIndependent Managers. The 

amendments would not change the 

numbers of Risk Committee 

Independent Managers or Risk 

Committee Non-Independent Managers 

(those independent and nonindependent managers designated by 

the Risk Committee under the Rules, 

rather than by the Parent). 

The amendments also update Section 

3.03 to reflect prior amendments to the 

operating agreement that the Board will 

meet no less frequently than quarterly at 

such time and place as may be 

determined by the chair and may meet 

more frequently (either in person or 

telephonically) as circumstances dictate, 

and to remove a requirement that the 

Board meet telephonically no less than 

twice per calendar year. 

Removal of Outdated Information 

Related to Conversion 

Sections 2.01 and 2.02 would be 

revised to remove outdated provisions 

of the Fifth Amended and Restated 

Operating Agreement relating to the 

operation of the Clearing House prior to 

its conversion in 2011 to a Delaware 

limited liability company and to reflect 

the occurrence of that conversion. 

Related defined terms would be 

removed and/or updated as necessary to 

reflect these changes. 

General Drafting Clarifications and 

Improvements 

ICE Clear Credit additionally proposes 

other general drafting clarifications and 

improvements. The proposed changes 

revise outdated references to the name, 

jurisdiction of organization, and/or 

governing document of certain 

Intercontinental Exchange, Inc. entities 

and replace references to the Chief 

Executive Officer with references to the 

President (which is the correct title of 

the relevant officer) to reflect prior 

amendments to the operating agreement. 

The other changes that would be made 

throughout the Sixth A&R Operating 

Agreement include updating the 

Clearing House’s and the Parent’s notice 

information as presented in Section 

7.01(a) and (b), updating the Clearing 

House’s registered office and agent in 

Delaware, referencing the Fifth 

Amended and Restated Operating 

Agreement where necessary, updating 

the definition of ICE’s Board of Director 

Governance Principles to refer to the 

current Independence Policy of the 

Board of Directors of ICE as well as 

other typographical and grammatical 

updates. 

II. Governance Playbook 

ICE Clear Credit proposes conforming 

changes to update the composition of 

the Board and to make other nonsubstantive amendments to the 

Governance Playbook, which 

consolidates governance arrangements 

set forth in ICE Clear Credit’s Rules, 

operating agreement, and other ICE 

Clear Credit policies and procedures. 

The changes to Section III.A would 

similarly reduce the number of Parent 


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