An LSEG Business

LCH | 10 Paternoster Square | London EC4M 7LS | T: +44 (0)20 7426 7000 | F: +44 (0)20 7426 7001 | lch.com

LCH Group Holdings Limited | LCH Limited | Banque Centrale de Compensation | LCH.Clearnet LLC

LCH Group Holdings Limited. Registered in England No. 4743602 Registered Office: 10 Paternoster Square, London, EC4M 7LS

CORPORATE

VIA CFTC Portal

Mr Christopher Kirkpatrick

Commodity Futures Trading Commission

1155 21st Street NW

Three Lafayette Centre

Washington DC 20581

16 January 2023

LCH Limited Self-Certification: Rulebook changes for Japanese securities

Dear Mr. Kirkpatrick,

LCH Limited (“LCH”), a derivatives clearing organization registered with the Commodity 

Futures Trading Commission (“CFTC”), is submitting for self-certification, pursuant to CFTC 

Regulation §40.6(a), changes to its Rulebook. 

Part I: Explanation and Analysis

The Japanese Act on Book-Entry Transfer of Corporate Bonds and Shares (Act No. 75 of 

2001) (“the Act”) requires that derivatives clearing organizations have a Japanese custody 

account with an authorised custodian and that Japanese securities are transferred from a

security provider's account (proprietary ledger) to a custody account (pledge ledger) (this 

includes Japanese government bonds). LCH has therefore added two new paragraphs to its 

Rulebook which set out what constitutes Japanese securities and the transfer of such 

securities between Clearing Member and LCH accounts. The changes reflect operations 

within LCH and recognize the requirements set out in the Act. There will be no change in 

arrangements with current custodians nor connections to any new custodians following this 

Rulebook amendment.

Part II: Description of Rule Changes

Provisions have been added to the LCH Procedures, Section 4: Margin and Collateral. 

Specifically, these are Sections 1.2.4 (Japanese Securities) and 1.2.5 (Transfer of Japanese 

Securities) which include the definition of Japanese securities and that the transfer of 

Japanese securities between LCH and a Clearing Member shall be made to and from a 

proprietary ledger to and from a pledge ledger with an authorized custodian under Japanese 

law.

The changes to the rules are included in Appendix I in black line form. This change will take 

effect on or after 30 January 2023.

Part III: Core Principle Compliance

LCH reviewed the proposed changes against the requirements of the Core Principles and 

finds it will continue to comply with all the requirements and standards set forth therein. 

Specifically, these changes will not alter how LCH complies with the operational requirements 

set out in Core Principle D (Risk Management) and Core Principle E (Settlement Procedures).
An LSEG Business

LCH | 10 Paternoster Square | London EC4M 7LS | T: +44 (0)20 7426 7000 | F: +44 (0)20 7426 7001 | lch.com

LCH Group Holdings Limited | LCH Limited | Banque Centrale de Compensation | LCH.Clearnet LLC

LCH Group Holdings Limited. Registered in England No. 4743602 Registered Office: 10 Paternoster Square, London, EC4M 7LS

CORPORATE

LCH already accepts these securities and believes they have minimal credit, market, and 

liquidity risks in accordance of Core Principle D and specifically §39.13(g)(10). LCH believes 

that articulating the existing operational process clearly in its Rulebook will not impact its 

compliance with Core Principle D. Furthermore, LCH will also remain compliant with Core 

Principle E and specifically §39.14(b), as it will continue to have the authority and operational 

capacity to affect a settlement with each clearing member following this amendment to its 

rulebook. 

Part IV: Public Information

LCH has posted notice of pending certification and submission with the CFTC, on the LCH 

website at https://www.lch.com/resources/rulebooks/proposed-rule-changes.

Part V: Opposing Views

There have been no opposing views expressed to LCH by governing board or committee 

members, members of LCH, or market participants.

Certification

LCH hereby certifies to the CFTC, pursuant to the procedures set forth in CFTC regulation 

§40.6, that the attached rule submission complies with the Commodity Exchange Act, as 

amended, and the regulations promulgated thereunder.

Should you have any questions please contact me at ebba.andersson1@lseg.com. 

Yours sincerely,

Ebba Andersson

Senior Compliance Officer

LCH Limited
An LSEG Business

LCH | 10 Paternoster Square | London EC4M 7LS | T: +44 (0)20 7426 7000 | F: +44 (0)20 7426 7001 | lch.com

LCH Group Holdings Limited | LCH Limited | Banque Centrale de Compensation | LCH.Clearnet LLC

LCH Group Holdings Limited. Registered in England No. 4743602 Registered Office: 10 Paternoster Square, London, EC4M 7LS

CORPORATE

Appendix I

Procedures Section 4: Margin and Collateral
LCH LIMITED 

PROCEDURES SECTION 4 

MARGIN AND COLLATERAL
Clearing House Procedures Collateral

LCH Limited © 2022 - 2 -

February 2022 

CONTENTS 

Section Page

1. Collateral ........................................................................................................................... 3

1.1 General Information .............................................................................................. 3

1.2 Documentation .................................................................................................... 89

1.3 Instructions via CMS ....................................................................................... 1110

1.4 Settlement Procedures – Securities Provided by a Clearing Member to the 

Clearing House on a Bilateral Basis ................................................................ 1211

1.5 Tax Arrangements ........................................................................................... 1514

1.6 References ....................................................................................................... 1716

1.7 Contingency Arrangements ............................................................................. 1716

1.8 Triparty Service of Euroclear and Clearstream ............................................... 1716

1.9 Custodial Segregated Accounts ....................................................................... 1817

1.10 [RESERVED] .................................................................................................. 1918

1.11 SwapClear Intra-Day Margin Call: Collateral Management ........................... 1918
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LCH Limited © 2022 - 9 -

July2022

transferred into an account with the Clearing House by the Clearing Member. 

The document is required to be executed in accordance with the instructions 

which accompany it. The Deed of Charge covers, inter alia, non-cash 

Collateral that is transferred to the Clearing House via bilateral settlement or 

via triparty arrangements. To operate triparty arrangements with the Clearing 

House, additional documentation must also be executed with the relevant 

triparty provider. 

The Deed of Charge is available from the Clearing House. Where a Clearing 

Member transfers non-cash Collateral to the Clearing House in respect of a 

Proprietary Account and a Client Account, it must execute two separate Deeds 

of Charge. 

1.2.2 Segregation Rules

Instructions relating to transfers and requests for the return of Collateral must 

indicate the particular account to which they relate. Any Collateral transferred 

to the Clearing House in respect of an account will be applied against the 

Clearing Member's margin liabilities on such account. 

Collateral transferred to the Clearing House in respect of a Clearing Member's 

Client Account will not be applied by the Clearing House to the Clearing 

Member’s liabilities on a Proprietary Account (see Regulation 10(d) 

(Accounts)) or on another Client Account, except in the case of a Cross-ISA 

Client Excess Deduction or pursuant to Rule 15(a)(ii) of the Default Rules or 

any Insufficient Resources Determination Rule. 

Collateral transferred to the Clearing House in respect of a Clearing Member's 

Proprietary Account may be applied by the Clearing House towards the 

payment of any sum whatsoever due by the Clearing Member to the Clearing 

House, save that, subject to Rule 8(d) of the Default Rules and any Insufficient 

Resources Determination Rule, no Collateral (other than House Excess and, to 

the extent not already included in the relevant Clearing Member Current 

Collateral Balance, Client Buffer) transferred in respect of a Clearing 

Member's Proprietary Account shall be applied on or towards payment or 

satisfaction of any of the Clearing Member's liabilities to the Clearing House 

on any of the Clearing Member's Client Accounts. 

1.2.3 Clearing Client Collateral

Where a Clearing Member wishes to transfer a Clearing Client's Collateral to 

the Clearing House, the Clearing Member must, inter alia, ensure that at all 

times it remains expressly agreed with the Clearing Client that the Clearing 

Member may charge the Collateral to the Clearing House, on the Clearing 

House's terms and free of the Clearing Client's or another owner's interest, to 

secure the Clearing Member's obligations to the Clearing House. 

The Clearing House gives no undertaking that, on the Default of a Clearing 

Member, it will not utilise Clearing Clients' Collateral which has been 

transferred to it by a Clearing Member, before utilising any other form of 

Collateral the Clearing House may hold.
Clearing House Procedures Collateral

LCH Limited © 2022 - 10 -

July2022

1.2.4 Japanese Securities 

Where a Clearing Member wishes to transfer non-cash Collateral which 

constitutes Japanese Securities to the Clearing House, the Clearing Member 

acknowledges and agrees that the Deed of Charge will also constitute a 

security agreement for the purpose of creating a security interest in such 

Japanese Securities under the applicable provisions of Japanese law and 

pursuant to the agreement of the Clearing Member under the Deed of Charge 

to grant to the Clearing House a pledge (shichiken) over such Japanese 

Securities. 

For the purposes of this Section 1.2.4 and Section 1.2.5 below, "Japanese 

Securities" means Japanese government bonds, corporate bonds and shares 

which are eligible for book-entry transfer through an applicable Japanese 

settlement system operated either by the Bank of Japan or Japan Securities 

Depository Center, Incorporated pursuant to the Act on Book-Entry Transfer 

of Corporate Bonds and Shares of Japan (shasai, kabushikitou no furikae ni 

kansuru houritsu) (Act No. 75 of 2001, as amended) (the "Japanese BookEntry Transfer Act"). 

1.2.5 Transfer of Japanese Securities

The transfer of non-cash Collateral that consists of Japanese Securities from 

the Clearing Member to the Clearing House shall be made by a record of the 

transfer of such Japanese Securities from the proprietary ledger (hoyu ran) of 

the relevant securities account of the Clearing Member opened with a 

custodian which is authorised under relevant Japanese laws and regulations to 

act as custodian in respect of the Japanese Securities (the "Clearing Member 

Japanese Securities Account") to the pledge ledger (shichiken ran) of the 

securities account of the Clearing House which is specified by the Clearing 

House from time to time that is opened with a custodian (the "Clearing House 

Japanese Custodian") which is authorised under relevant Japanese laws and 

regulations to act as custodian in respect of the Japanese Securities (the 

"Clearing House Japanese Securities Account"). 

The transfer of non-cash Collateral that consists of Japanese Securities from 

the Clearing House to the Clearing Member shall be made by a record of the 

transfer of such Japanese Securities from the pledge ledger (shichiken ran) of 

the relevant Clearing House Japanese Securities Account maintained by the 

Clearing House Japanese Custodian to the proprietary ledger (hoyu ran) of the 

relevant Clearing Member Japanese Securities Account. 

Any instruction in respect of the transfer of Japanese Securities shall be made 

by the Clearing Member or the Clearing House, as applicable, to its custodian 

in accordance with the Japanese Book-Entry Transfer Act.

Unless otherwise specified by the Clearing House, the Clearing House 

Japanese Securities Account will be an omnibus account in the name of the 

Clearing House maintained by the Clearing House Japanese Custodian for 

holding Japanese Securities posted as collateral to the Clearing House by 

multiple Clearing Members. The Clearing House will maintain separate 
Clearing House Procedures Collateral

LCH Limited © 2022 - 11 -

July2022

records enabling it to distinguish the Japanese Securities held in the Clearing 

House Japanese Securities Account for, and pledged to the Clearing House by, 

one Clearing Member under the terms of the Deed of Charge between the 

Clearing House and that Clearing Member from the Japanese Securities held 

in the Clearing House Japanese Securities Account for, and pledged by, any 

other Clearing Member under the terms of the Deed of Charge between the 

Clearing House and that other Clearing Member. 

Where the Clearing Member transfers non-cash Collateral that consists of 

Japanese Securities to the pledge ledger (shichiken ran) of the relevant 

Clearing House Japanese Securities Account, references in the Regulations 

and these Procedures to an "Account" or any similar reference shall be 

construed as including a reference to the relevant Clearing House Japanese 

Securities Account if the context so requires.

Clearing Members are warned that the transfer of Collateral and the 

grant of a security interest are complex legal matters. The Rulebook and 

any communication with the Clearing House (whether of an oral or 

written nature) are not to be taken as legal or other advice. A Clearing 

Member should seek its own independent professional advice. 

1.3 INSTRUCTIONS VIA CMS 

The Clearing House will action instructions relating to Collateral that have been input 

and authorised via the CMS in accordance with, and subject to, this Section 4 of the 

Procedures. 

For non-cash instructions to transfer securities and triparty Collateral, the details input 

on the CMS will form the basis of the matching instruction sent to the relevant 

Depository. Clearing Members must ensure that the details are input correctly in order to 

avoid unmatched transactions. 

For cash instructions via PPS, the details the Clearing Member inputs into the CMS 

will form the basis of the call or the SWIFT MT202 payment instruction sent to the 

relevant PPS Bank. 

For cash instructions via any real-time gross settlement system (“RTGS”): 

1.3.1 The Clearing Member must input the relevant details into the CMS, to ensure 

that the Clearing House credits/debits the correct amount of cash to the 

Clearing Member’s Collateral Account. 

1.3.2 If the Clearing House’s policies in respect of concentration limits are satisfied, 

the Clearing Member will supply the Unique End-to-End Transaction 

Reference (the “UETR”) of the SWIFT MT202 payment instruction into the 

UETR field in the CMS. 

1.3.3 If the payment does not match up with an authorised CMS instruction 

featuring the same UETR, the Clearing House will return the cash to the 

Clearing Member on or after the cash deadline for the relevant currency, on