Federal Register / Vol. 86, No. 164 / Friday, August 27, 2021 / Notices 48257 

20 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 

shall have the meaning specified in the Rule Book, 

the Clearing Supplement, the Procedures and the 

Clearing Regulations, as applicable. 

4LCH Limited is a recognized central 

counterparty supervised in the United Kingdom by 

the Bank of England and a derivatives clearing 

organization registered with the Commodity 

Futures Trading Commission. 

5The additional non-Euro Eligible Collateral, 

identified as ‘‘New Instruments’’ in the Clearing 

Notice, include: (i) Australian Treasury Bills and 

Government Bonds; (ii) Canadian Treasury Bills 

and Government Bonds; (iii) Danish Treasury Bills 

and Government Bonds; (iv) Japanese Treasury 

Bills, Treasury Discount Bills, and Government 

Bonds; (v) Norwegian Treasury Bills and 

Government Bonds; (vi) Swedish Treasury Bills and 

Government Bonds; and (vii) Swiss Treasury Bills 

and Government Bonds. The complete list of 

Eligible Collateral, together with all applicable 

haircuts, is also found on LCH SA’s website as set 

out in Paragraph 3.9 of the Procedures. 

6Only instruments with a minimum outstanding 

amount of Ö500 million or greater will be eligible 

to be posted with LCH SA. 

All submissions should refer to File No. 

SR–PEARL–2021–38. 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 No. 

SR–PEARL–2021–38, and should be 

submitted on or before September 17, 

2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.20

Jill M. Peterson, 

Assistant Secretary. 

[FR Doc. 2021–18463 Filed 8–26–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–92723; File No. SR–LCH 

SA–2021–002] 

Self-Regulatory Organizations; LCH 

SA; Notice of Filing of Proposed Rule 

Change Relating to Eligible Collateral 

and Liquidity Risk Management 

August 23, 2021. 

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

Securities Exchange Act of 1934 

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

notice is hereby given that on August 

18, 2021, 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’’) described in Items I, II 

and III below, which Items have been 

primarily prepared primarily by LCH 

SA. The Commission is publishing this 

notice to solicit comments on the 

Proposed Rule Change from interested 

persons. 

I. Clearing Agency’s Statement of the 

Terms of Substance of the Proposed 

Rule Change 

(a) Banque Centrale de Compensation, 

which conducts business under the 

name LCH SA, is proposing to expand 

the non-cash collateral that a Clearing 

Member 3 may post with LCH SA to 

meet the member’s margin requirements 

(the ‘‘Eligible Collateral’’) to include 

certain additional non-Euro government 

bonds by (i) amending its CDS Clearing 

Rulebook (the ‘‘Rule Book’’) to clarify 

that such additional non-Euro 

government bonds are excluded from 

the Pledged Eligible Collateral, and (ii) 

publishing a new Clearing Notice, in 

accordance with Article 4.2.6.1 of the 

CDS Clearing Rule Book, specifying the 

additional acceptable non-Euro 

government bonds. LCH SA is also 

proposing to expand the custodians at 

which Clearing Members may deposit 

Eligible Collateral by adding 

Clearstream Banking Luxembourg as a 

central securities depository for LCH SA 

in Section 3 of the CDS Clearing 

Procedures—Collateral, Variation 

Margin and Cash Payment. Finally, LCH 

SA is proposing to amend its Liquidity 

Risk Modelling Framework (the 

‘‘Framework’’) to take into account the 

expanded list of Eligible Collateral. 

II. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

In its filing with the Commission, 

LCH SA included statements concerning 

the purpose of and basis for the 

Proposed Rule Change and discussed 

any comments it received on the 

Proposed Rule Change. The text of these 

statements may be examined at the 

places specified in Item IV below. LCH 

SA has prepared summaries, set forth in 

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

significant aspects of such statements. 

A. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

1. Purpose 

The Proposed Rule Change is being 

adopted to expand the non-Euro 

government bonds that a Clearing 

Member may post with LCH SA in order 

to satisfy the clearing member’s margin 

requirements. Currently, the only nonEuro Eligible Collateral are Gilts, issued 

by the United Kingdom, and Treasury 

Bills, issued by the United States. LCH 

SA is proposing to expand the list of 

Eligible Collateral in response to 

clearing member requests and in order 

to harmonize permitted Eligible 

Collateral with the Eligible Collateral 

permitted to satisfy clearing member 

margin requirements at LCH SA’s 

affiliate LCH Limited.4

To effect this change, LCH SA is 

proposing to issue a new Clearing 

Notice identifying the additional nonEuro Eligible Collateral, defined as 

‘‘New Instruments’’ in the Clearing 

Notice.5 LCH SA has determined that (i) 

each of the non-Euro jurisdictions 

whose bonds have been added have a 

high credit score, and (ii) each of the 

New Instruments has sufficient 

liquidity.6 However, because the 

European Central Bank will not convert 

the additional non-Euro Eligible 

Collateral to Euros and LCH SA 

currently does not otherwise have the 

operational capacity to convert the 

additional non-Euro Eligible Collateral 

to Euros, the Clearing Notice will also 

provide that non-Euro Eligible Collateral 

may satisfy no more than 15 percent 

(15%) of a Clearing Member’s total 

margin requirements. 

In addition, the Clearing Notice will 

provide that the New Instruments will 

not be eligible as ‘‘Pledged Eligible 

Collateral’’ and, therefore, may not be 

pledged in accordance with a pledge 

agreement entered into between LCH SA 


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48258 Federal Register / Vol. 86, No. 164 / Friday, August 27, 2021 / Notices 

7See, Paragraph 3.4(d)(i); Paragraph 3.10(a), (b) 

and (c); and Paragraph 3.12(b) of Section 3 of the 

CDS Clearing Procedures. 

8 In addition to its CDSClear service, LCH SA 

provides clearing services in connection with cash 

equities and derivatives listed for trading on 

Euronext (EquityClear), commodity derivatives 

listed for trading on Euronext (CommodityClear), 

and triparty and bilateral Repo transactions 

(EuroGC+ and RepoClear). 

9See, also, Section 5.2.1.1, Assumptions, 

footnotes 20 and 2; Section 5.3.5, LCR Calculation, 

footnote 26; and Section 5.4.3, CC&G LCR 

Calculation. 

10The two exceptions are: (i) Collateral deposited 

under the regime of pledge; and (ii) Collateral 

deposited through a central bank guarantee. 

11This clarification is repeated in Section 4.1.4, 

Synthesis. 

12 15 U.S.C. 78q–1. 

13 15 U.S.C. 78q–1(b)(3)(F). 

14 17 CFR 240.17Ad–22(e)(4)(ii). 

15 17 CFR 240.17Ad–22(e)(5). 

and a clearing member having exercised 

its option to transfer Eligible Collateral 

to LCH SA through a Belgian law 

security interest. Accordingly, the 

definition of ‘‘Pledged Eligible 

Collateral’’ in Section 1.1.1 of the CDS 

Clearing Rule Book will be revised to 

provide that the term ‘‘Pledged Eligible 

Collateral’’ means ‘‘Eligible Collateral as 

described in a Clearing Notice which is 

pledged in accordance with a Pledge 

Agreement.’’ 

Separately, LCH SA is proposing to 

revise Section 3 of its CDS Clearing 

Procedures—Collateral, Variation 

Margin and Cash Payment, in several 

places to add Clearstream Banking 

Luxembourg as a central securities 

depository for LCH SA.7 Finally, as 

noted above, LCH SA is also proposing 

to amend the Framework to take into 

account the expanded list of Eligible 

Collateral. The Framework is one of 

several policies and procedures that 

LCH SA maintains to manage its 

liquidity risk, i.e., the risk that LCH SA 

will not have enough cash available, in 

extreme but plausible circumstances, to 

settle margin payments or delivery 

obligations when they become due, in 

particular upon the default of a clearing 

member. The Framework describes the 

Liquidity Stress Testing framework by 

which the Collateral and Liquidity Risk 

Management department (‘‘CaLRM’’) of 

LCH Group Holdings Limited (‘‘LCH 

Group’’) assures that LCH SA has 

enough cash available to meet any 

financial obligations, both expected and 

unexpected, that may arise over the 

liquidation period for each of the 

clearing services that LCH SA offers.8

In particular, because the European 

Central Bank will not convert the 

additional non-Euro Eligible Collateral 

to Euros and LCH SA currently does not 

otherwise have the operational capacity 

to convert the additional non-Euro 

Eligible Collateral to Euros, LCH SA is 

proposing to amend Section 4.1.3 and 

Section 4.1.4 of the Framework to make 

clear that the additional non-Euro 

Eligible Collateral will be excluded from 

the calculation of LCH SA’s liquidity 

resources.9

Unrelated to the expansion of nonEuro Eligible Collateral, LCH SA is also 

proposing to amend the Framework to 

clarify certain Sections and update 

certain tables and formula. In this 

regard: 

• Section 4.1.1, Description of 

sources of liquidity, will be revised to 

clarify that, with limited exceptions,10

LCH SA generally receives Collateral on 

a full title transfer basis, which permits 

LCH SA to use such collateral, to offset 

it with all related claims and to consider 

such Collateral available for liquidity 

purposes. 

• Section 4.1.3, Assessment of assets’ 

liquidity, will be revised to clarify that 

Collateral deposited under the pledge 

regime may be used for liquidity 

purposes only if the clearing member 

pledging such Collateral has 

defaulted.11

• Section 4.2.1.4, Update of the 

figures of the liquidity injected in the 

settlement system to smooth settlement 

activity. Figures are updated 

periodically in line with the flow 

observed on the CSD and ICSD. 

• Section 5.1.1, Overview of the 

Monitoring liquidity, will be revised to 

clarify that LCH SA has a group policy 

that allows LCH SA to perform an 

extraordinary margin call if liquidity 

deteriorates. 

• Section 5.3.1, Liquidity Coverage 

Ratio (LCR), Overview, will be revised 

to explain that the LCR is an internal 

ratio similar, but not equivalent, to the 

banking metric defined in the Basel III 

framework and is used to ensure 

compliance with EMIR. 

• Section 5.3.1.1, Liquidity 

requirements Assumptions per clearing 

services RepoClear, will be revised to 

update the formula for calculating 

market risk in RepoClear transactions. 

• Section 5.3.1.3, Cash Equity, will be 

revised to clarify the treatment of 

settlement risk to account for early 

exercise of American-style options. 

• Sections 5.3.1.4, Listed derivatives, 

5.3.1.5, Credit Default Swaps, and 5.3.4, 

Cover 2 selection, will be revised to 

clarify that the calculation of LCR 

liability components include spread 

shifts and implied volatility shifts. 

• Section 5.3.4, Clarification that for 

cover 2 selection the calculation of 

stressed VM for Cash Equity and Listed 

Derivatives includes scenario based on 

price shifts and implied volatility shifts. 

• Section 5.3.5, A note will be added 

to specify that the new non cash 

securities will be excluded from the 

LCR assets, in line with amendment in 

section 4.1.3. 

• Section 5.4.3, A will be added to 

specify that in line with general Cover 

2 LCR also for the CC&G LCR the new 

non euro securities will be excluded 

from the liquid assets, in line 

amendments in sections 4.1.3. and 5.3.5. 

• Section 5.5, A duplicated sentence 

was deleted. 

• Section 5.5.1, will be revised to 

clarify that Non Euro non cash collateral 

are not European Central Bank eligible 

assets and that when considering 

multiple defaults the clearing members 

with the worst credit quality are 

assumed defaulting first. 

• Appendix 3 and 5 will be updated 

to add of the overdraft facility in place 

with Citibank that allows the CCP to 

source non Euro currencies in case of 

liquidity needs. 

2. Statutory Basis 

LCH SA has determined that the 

Proposed Rule Change is consistent 

with the requirements of Section 17A of 

the Act 12 and regulations thereunder 

applicable to it. Section 17A(b)(3)(F) of 

the Act requires, inter alia, that the rules 

of a clearing agency should be designed 

to ‘‘assure the safeguarding of securities 

and funds that are in its custody or 

control or for which it is responsible.’’ 13

In addition, Regulation 17Ad– 

22(e)(4)(ii) requires a central 

counterparty (‘‘CCP’’) that is involved in 

activities with a more complex risk 

profile, e.g., that provides CCP services 

for security-based swaps, to maintain 

and enforce written policies and 

procedures reasonably designed to 

effectively ‘‘measure, monitor, and 

manage its credit exposures from its 

payment, clearing and settlement 

processes’’ to assure that it maintains 

additional financial resources to enable 

it to cover a wide range of stress 

scenarios that include the default of two 

participant family clearing members 

that would potentially cause the largest 

aggregate liquidity exposure for the CCP 

in extreme but plausible market 

conditions.14 Further, Regulation 17Ad– 

22(e)(5) requires a CCP to limit the 

assets that it accepts as collateral ‘‘to 

those with low credit, liquidity and 

market risks and enforce appropriately 

conservative haircuts and concentration 

limits’’.15

The additional non-Euro Eligible 

Collateral that LCH SA is proposing to 

permit clearing members to post with 


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Federal Register / Vol. 86, No. 164 / Friday, August 27, 2021 / Notices 48259 

16Because non-Euro Eligible Collateral may be 

taken into account to satisfy no more than 15 

percent (15%) of a clearing member’s total margin 

requirements, LCH SA has determined that specific 

concentration limits are unnecessary. 

17 15 U.S.C. 78q–1(b)(3)(F). 18 15 U.S.C. 78q–1(b)(3)(I). 19 17 CFR 200.30–3(a)(12). 

LCH SA to satisfy the clearing member’s 

margin requirements is limited to 

sovereign debt that is issued by 

jurisdictions that have a high credit 

score and subject to conservative 

haircuts. Further, LCH SA has 

determined that non-Euro Eligible 

Collateral may be taken into account to 

satisfy no more than 15 percent (15%) 

of a clearing member’s total margin 

requirements and, importantly, will be 

excluded from the calculation of LCH 

SA’s liquidity resources.16 As such, the 

amendments to Section 3 of the CDS 

Clearing Procedures and, in particular, 

the Framework continue to assure that 

LCH SA (i) maintains additional 

financial resources to enable it to cover 

a wide range of stress scenarios, and (ii) 

limits the assets that it accepts as 

collateral to those with low credit, 

liquidity and market risks and 

appropriately conservative haircuts and 

concentration limits. Therefore, the 

amendments are consistent with the 

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

the Act and Regulation 17Ad– 

22(e)(4)(ii) and Regulation 17Ad– 

22(e)(5). 

As noted above, Section 17A(b)(3)(F) 

of the Act requires, inter alia, that the 

rules of a clearing agency ‘‘assure the 

safeguarding of securities and funds that 

are in its custody or control or for which 

it is responsible.’’ 17 The amendments to 

the Framework unrelated to the 

expansion of non-Euro Eligible 

Collateral clarify certain Sections and 

update certain tables and formula. As 

such, the clarifications set out in the 

amended Framework enhance LCH SA’s 

ability to assure the safeguarding of 

securities and funds that are in its 

custody or control or for which it is 

responsible. For example, the 

amendments clarify that: (i) LCH SA 

generally receives Collateral on a full 

title transfer basis, which permits LCH 

SA to use such collateral, to offset it 

with all related claims and to consider 

such Collateral available for liquidity 

purposes; (ii) Collateral deposited under 

the pledge regime may be used for 

liquidity purposes only if the clearing 

member pledging such Collateral has 

defaulted; (iii) LCH SA is able to 

perform an extraordinary margin call if 

liquidity deteriorates; and (iv) the 

calculation of LCR liability components 

include spread shifts and implied 

volatility shifts. The amendments to the 

Framework, therefore, are consistent 

with the requirements of Section 

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

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.18 LCH SA does not 

believe the Proposed Rule Change 

would have any impact, or impose any 

burden, on competition. The Proposed 

Rule Change does not address any 

competitive issue or have any impact on 

the competition among central 

counterparties. LCH SA operates an 

open access model, and the Proposed 

Rule Change will have no effect on this 

model. 

C. Clearing Agency’s Statement on 

Comments on the Proposed Rule 

Change Received From Members, 

Participants or Others 

Written comments relating to the 

Proposed Rule Change have not been 

solicited or received. LCH SA will 

notify the Commission of any written 

comments received by LCH SA. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the self-regulatory organization 

consents, the Commission will: 

(A) By order approve or disapprove 

such proposed rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

• Use the Commission’s internet 

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

rules/sro.shtml) or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

LCH SA–2021–002 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–LCH SA–2021–002. 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 such 

filings will also be available for 

inspection and copying at the principal 

office of LCH SA and on LCH SA’s 

website at https://www.lch.com/ 

resources/rulebooks/proposed-rulechanges. 

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–LCH SA–2021–002 

and should be submitted on or before 

September 17, 2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.19

Jill M. Peterson, 

Assistant Secretary. 

[FR Doc. 2021–18459 Filed 8–26–21; 8:45 am] 

BILLING CODE 8011–01–P 


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