Via CFTC Portal

30 May 2023

Mr Christopher J. Kirkpatrick

Office of the Secretariat

Commodity Futures Trading Commission

Three Lafayette Centre

1155 21st Street NW

Washington, DC 20581

Re: Proposed amendments to LCH SA CDS Clearing Rules – Triparty Collateral mechanism

Dear Mr. Kirkpatrick,

Pursuant to CFTC regulation §40.6(a), LCH SA (“LCH SA”), a derivatives clearing organization (“DCO”) 

registered with the Commodity Futures Trading Commission (the “CFTC”), is submitting for selfcertification the proposed amendments to its (i) CDS Clearing Rule Book (“Rule Book”) and (ii) CDS 

Clearing Procedures (“Procedures”) to incorporate new terms and to make conforming, clarifying and 

clean-up changes to offer the triparty collateral solution to CDSClear clearing members (the “Proposed 

Rule Change”).1

The implementation of the Proposed Rule Change will be contingent on LCH SA’s receipt of all necessary 

regulatory approvals. The Proposed Rule Change is expected to be effective from mid-June, 2023

however, in no event, will either be implemented earlier than 10 business days after the proposed 

changes are filed with the CFTC.

The text of the Proposed Rule Change is attached hereto as Appendix.

Part I: Explanation and Analysis

In addition to the current currencies and securities that are eligible as Collateral to be posted on a 

bilateral basis, LCH SA is proposing to offer the triparty collateral solution to the clearing members of 

the CDSClear service (the “Clearing Members”).

2 Clearing Members have expressed interest in using 

this solution in respect of the CDSClear service as well so as to enable them to harmonize their 

1 Capitalized terms used but not defined herein shall have the meaning specified in LCH SA’s existing 

CDS Clearing Rule Book or Clearing Supplement.

2 LCH SA already offers a tri-party collateral solution to members of its non-U.S. business lines. Indeed, 

when this triparty solution was launched for the LCH SA RepoClear and EquityClear & CommodityClear 

services, the CDSClear roadmap was busy with other initiatives such that it was decided to postpone the 

inclusion of CDSClear in the scope of services for which Clearing Members could use the triparty 

solution.
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operational process across all clearing services of LCH SA and benefit from flexibility in their collateral 

management framework as well as the ability to transfer securities as collateral in a more efficient and 

automated way than on a bilateral basis. Pursuant to this triparty collateral solution, LCH SA and a 

Clearing Member may appoint Euroclear Bank and/or Euroclear France as a triparty agent and authorize 

such triparty agent to enter settlement instructions on their behalf into the securities settlement system 

to affect movements of securities between a giver account and a taker account opened with the relevant 

triparty agent on a full title transfer basis for the purposes of transferring Collateral to LCH SA or releasing 

such Collateral. The triparty collateral solution is an additional way of transferring Collateral to LCH SA 

by a Clearing Member which is under no obligation to use this solution. . Further, LCH SA is not 

proposing to change rules governing the composition of collateral that LCH SA accepts from its clearing 

members. LCH SA is not changing collateral eligibility or concentration limits, but rather, is merely 

providing for a different process for posting acceptable collateral.

Part II: Description of Rule Changes

The Rule Book and Section 3 of the Procedures are proposed to be amended to offer this triparty 

collateral solution.

1. Rule Book

LCH SA is proposing to modify Section 1.1.1 (Terms defined in the CDS Clearing Rule Book) to incorporate 

the defined term of “Triparty Documentation” to refer to the documentation entered into between LCH 

SA, the relevant triparty agent and a Clearing Member having exercised its option to transfer Eligible 

Collateral on a full title transfer basis to LCH SA through a triparty arrangement pursuant to Section 3 of 

the Procedures.

As a clarification regarding the collateral eligible to Triparty, it is a subset of the LCH SA list of eligible 

collateral, restricted to bonds that can settle in the Euroclear CSDs (i.e., does not include US Treasuries, 

UK Gilts, Non-Euro Non-Cash debts and Equities), are interoperable between Euroclear Bank and 

Euroclear France, and are eligible to 3G pool. A new indent (xxiv) is proposed to be added to Article 

2.2.1.1 in order to provide for a new membership requirement pursuant to which the Applicant shall 

accept to comply with the performance of its obligations pursuant to a Triparty Documentation. As a 

consequence, the following indents would be renumbered.

Article 2.2.2.1 is also proposed to be amended to add the obligation to comply with the performance of 

the obligations pursuant to a Triparty Documentation in a new indent (vii) as a continuing obligation for 

a Clearing Member. Consequently, the following indents would need to be renumbered. 

Since the Triparty Documentation will provide for the haircut that will apply to the relevant Eligible 

Collateral, a reference to the Triparty Documentation is proposed to be added in Article 4.2.6.4 which 

currently provides, among others, that LCH SA may apply haircuts to Eligible Collateral as set out on the 

Website.

The failure of a Clearing Member to perform its obligations in accordance with, or a breach of, any 

Triparty Documentation is proposed to be added to the list of Events provided for in Article 4.3.1.1, as 

an Event that might constitute an Event of Default in respect of a Clearing Member, as this is currently 

the case in respect of the CDS Clearing Documentation and the Pledge Agreement.
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The Rule Book would be also amended to make the following conforming changes that are not related 

to the implementation of the triparty collateral solution for the CDSClear service. The definition of 

“Pledged Eligible Collateral” in Section 1.1.1 (Terms defined in the CDS Clearing Rule Book) is proposed 

to be amended by removing a reference to a Clearing Notice since the list of Eligible Currencies and 

Eligible Collateral is set out in Section 3 of the Procedures in accordance with Article 4.2.6.1 and the 

proposed amended Section 3 of the Procedures would provide where the list of Eligible Collateral 

(including Pledged Eligible Collateral) could be found.

Article 2.2.2.1 would be amended to correct a cross-reference in indent (iv).

Finally, Article 4.2.6.1 is proposed to be amended by making a reference to Section 3 of the Procedures 

in respect of the conditions that will govern the notification of any change in Eligible Currencies and 

Eligible Collateral.

2. Procedures

LCH SA also proposes to modify Section 3 of the Procedures to incorporate terms for implementing this 

triparty collateral solution.

Section 3.10 (Eligible Collateral transferred with full title) is proposed to be amended to include securities 

transferred pursuant to a triparty arrangement by adding a new paragraph 3.10.2 (Eligible Collateral 

provided pursuant to a triparty arrangement) and a new introductory paragraph.

Consequently, the current Section 3.10 will be moved under a paragraph 3.10.1 entitled “Eligible 

Collateral provided on a bilateral basis” and any reference to Eligible Collateral provided with full title 

transfer in this new paragraph 3.10.1 will be clarified by adding that such Eligible Collateral is provided 

on a bilateral basis. Any cross-reference to Section 3.10 in Section 3 of the Procedures is proposed to be 

replaced by a cross-reference to paragraph 3.10.1 where necessary.

As a result of the new paragraph 3.10.2, a cross-reference to this new paragraph, indent (d) in each 

section referring to the return of any type of Collateral in indent (f) of Section 3.7 (Euro denominated 

Cash Collateral), indent (f) of Section 3.8 (Non-Euro denominated Cash Collateral), indent (c) of Section 

3.9 (Eligible Collateral), indent (b) of paragraph 3.10.1 (Eligible Collateral provided on a bilateral basis) 

and indent (a) of Section 3.15 (Eligible Collateral transfer pursuant to the Pledge Agreement).

New sub-paragraph 3.10.2, as further described in the next paragraph, will mainly replicate subparagraph 3.10.1 subject to the necessary amendments to be made to refer to the triparty 

arrangements. Such amendments would include the requirement for a Clearing Member to enter into 

the triparty documentation as set out in a new sub-paragraph (a) and the reference to triparty accounts 

to be used by LCH SA. However, there will be some differences in the timelines applicable to the Clearing 

Member for the purposes of transferring, or requesting return of, securities subject to the triparty 

arrangements, as described below, and mainly due to the use of a triparty agent for managing their 

Collateral posted with LCH SA. In new paragraph 3.10.2 (Eligible Collateral provided pursuant to a triparty 

arrangement), it is proposed to add a new sub-paragraph (a) (General information) pursuant to which 

the Clearing Member, a triparty agent which is either Euroclear Bank or Euroclear France and LCH SA 

may enter into the relevant triparty documentation available upon request to the CDSClear Business 
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Development & Relationship Management team. Under the Triparty Documentation, the relevant 

triparty agent will be authorised by LCH SA and the Clearing Member to enter settlement instructions on 

their behalf into the relevant securities settlement system to transfer with full title securities as Eligible 

Collateral between LCH SA and the Clearing Member. Pursuant to the following sub-paragraph (b) 

(Securities accounts), LCH SA will hold such Collateral in a security account in each Euroclear Bank and 

Euroclear France for the Clearing member’s house activity and in a security account in each Euroclear 

Bank and Euroclear France for the Clearing member’s client activity (excluding any FCM Clients since the 

provision of securities pursuant to this triparty collateral solution will not be permitted for FCM Clients 

pursuant to new sub-paragraph (c) of new paragraph 3.1.0.2, indent (ii)). LCH SA may invest Eligible 

Collateral provided to LCH SA with full title pursuant to a triparty arrangement in accordance with 

Paragraph 3.11(b). Pursuant to a new sub-paragraph (c) included in new paragraph 3.10.2, the provisions 

on the transfer of Eligible Collateral pursuant to a triparty arrangement will be described; the purpose 

of such transfer is either for transferring additional Collateral or substituting such Collateral for any 

alternative Collateral recorded in its Collateral Accounts. The Clearing Member will need to notify LCH 

SA of its request to transfer such Eligible Collateral pursuant to a triparty arrangement by no later than 

16:00 CET on a Business Day (“Day minus one”) in order for the Clearing Member’s request to be 

processed on the next following Business Day (“Day”) and to enable the transfer to occur on Day in 

respect of the relevant Collateral Account. It is also specified that the Clearing Member shall notify to 

LCH SA which CCM Client Collateral Account shall record Eligible Collateral provided pursuant to a 

triparty arrangement, otherwise such request will not be accepted by LCH SA. The relevant instructions 

must be submitted, via Euroclear Bank or Euroclear France, as applicable, on Day minus one. Depending 

on the time when LCH SA receives the confirmation of settlement from Euroclear Bank or Euroclear 

France on Day, such Eligible Collateral provided pursuant to a triparty arrangement will form part of the 

relevant Margin Balance. The following paragraph (d) will deal with the applicable conditions for 

returning such Eligible Collateral. Such return will be subject to the notification of the Clearing Member’s 

request to LCH SA by the Clearing Member by no later than 12:00 CET on a Business Day (“Day”) in order 

for the Clearing Member’s request to be processed on Day and to allow LCH SA to give instructions to 

make the transfer to occur on Day during the Additional Specific Collateral Slot. Any request received by 

LCH SA pursuant to this process shall be deemed firm and irrevocable. On Day, following the First 

Intraday Slot and, in any event, by 12:00 CET at the latest, LCH SA will re-calculate the value of the Eligible 

Collateral to be returned (the “Eligible Triparty Collateral Value”). If LCH SA holds sufficient Collateral 

(other than that which is to be returned) to cover the relevant Margin Requirement, it will return the 

Eligible Collateral. If LCH SA does not hold sufficient Collateral (other than that which is to be returned) 

to cover the relevant Margin Requirement, LCH SA will debit an amount of Euro-denominated Cash 

Collateral equal to the Eligible Triparty Collateral Value from the relevant TARGET2 Account(s) of the 

Clearing Member (or the relevant cash accounts of its TARGET2 Payment Agent) during the Additional 

Specific Collateral Slot. Provided an amount of Euro-denominated Cash Collateral equal to the Eligible 

Triparty Collateral Value is received by LCH SA, LCH SA will process the return of the Eligible Collateral to 

the Clearing Member, otherwise the Clearing Member’s return request will be deemed void and no 

return will be processed. LCH SA’s inability to debit Euro-denominated Cash Collateral equal to the 

Eligible Triparty Collateral Value intra-day through TARGET2 shall not constitute a Payment Failure in 

respect of the Clearing Member. When these conditions applicable to the Collateral’s return are 

satisfied, the relevant instructions will be submitted via Euroclear Bank or Euroclear France, as 

applicable, on Day between 13:00 and 15:00 CET, in advance of the relevant Central Securities 

Depository/International Central Securities Depository cut-off time (except in exceptional 

circumstances, as determined in an objective and commercially reasonable manner). Last paragraph of 
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new paragraph 3.10.2 will provide for exceptional time limits for notification of transfer and return 

requests in case of atypical market conditions.

Section 3.9 (Eligible Collateral) which applies to any type of securities transferred on a full title transfer 

basis (including both securities transferred on a bilateral basis or pursuant to a triparty arrangement) or 

pursuant to the pledge agreement will be amended to clarify where the information on eligible 

securities, applicable haircuts and concentration limits can be found: on the Website and in respect of 

securities transferred in accordance with the triparty collateral solution, in the Triparty Documentation 

as well. In addition, the amendment process in respect of such eligible securities will be clarified in 

Section 3 of the Procedures by adding a reference to a notification by way of a Clearing Notice (that is 

proposed to be removed from the Rule Book as previously described). Additional eligibility criteria and 

concentration limits in respect of securities provided pursuant to a triparty arrangement will be subject 

to the prior consent of the relevant triparty agent as provided for in a new paragraph 3.10.2 (a) of Section 

3 of the Procedures. As a result, the reference to a Clearing Notice mentioned in Section 3.13 applicable 

to Eligible Collateral pursuant to the Pledge Agreement will be removed as there will be no Clearing 

Notice which describes such Eligible Collateral, all relevant information will be found on the Website.

Section 3.9 will be also amended to clarify that Eligible Collateral transferred with full title may be 

provided on a bilateral basis or pursuant to a triparty arrangement, where necessary. Indent (c) (Events 

affecting the eligibility of Eligible Collateral) is proposed to be amended to exclude securities transferred 

pursuant to the triparty collateral solution from the current management process applicable to Collateral 

Events. Such Collateral Events will be managed by the relevant triparty agent in accordance with the 

Triparty Documentation. Consequently, the scope of Section 3.12 is reduced to Eligible Collateral 

transferred with full title on a bilateral basis.

Other amendments will be made to Section 3 of the Procedures in order to correct some crossreferences or typographical errors.

With the exception of the above proposed CDS Clearing Rules changes, no other change are required.

Part III: Core Principle Compliance

LCH SA has reviewed the Proposed Rule Changes against the requirements of Commission’ regulations 

and DCO Core Principles, and finds that these changes will continue to comply with all the requirements 

and standards therein and in particular with the following principles and Commission’s regulations 

including, but not limited to § 39.13 and 39.27.

DCO Core Principle D – Risk management. CFTC Regulation 39.13 requires a DCO to ensure that it 

possesses the ability to manage the risks associated with discharging the responsibilities of the 

derivatives clearing organization through the use of appropriate tools and procedures. The triparty 

collateral mechanism is also offering an optional solution that would reduce the number of manual 

actions necessary in the processing of non-cash collateral deposit/release for both the clearing agency 

and the Clearing Members. Indeed, there is only a single instruction required from the Clearing Member 

(i.e. the triparty ticket amount) to allocate a basket of securities in the system with an automatic process 

for the settlement of margin calls and handling of coupons. This contributes to reduce the operational 
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risk associated with the settlement of margin call and is thus consistent with the requirements of Core 

Principle D and § 39.13.

DCO Core Principle R – Legal risk considerations. LCH SA has determined that the Proposed Rule 

Changes are consistent with the requirements of CFTC Regulation 39.27 to remain in good standing at 

all times in the relevant jurisdictions and to operate pursuant to a well-founded, transparent, and 

enforceable legal framework that addresses each aspect of its activities. As described above, the 

Proposed Rule Change will be adding (i) a new membership requirement regarding the compliance of 

the Clearing Member with the triparty documentation; and (ii) the failure of a Clearing Member to 

perform its obligations in accordance with, or a breach of, any Triparty Documentation to the list of 

Events that might constitute an Event of Default in respect of a Clearing Member in order to operate

pursuant to a well-founded, transparent, and enforceable legal framework which is consistent with the 

requirements of Core Principle R and § 39.27.

Part IV: Public Information

LCH SA has posted a notice of pending certifications with the CFTC and a copy of the submission on LCH’s 

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

Part V: Opposing Views

There were no opposing views expressed to LCH SA by governing board or committee members, 

members of LCH SA that were not incorporated into the rule.

Certification

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

§ 40.6, that attached changes submission complies with the Commodity Exchange Act, as amended, and 

the regulations promulgated there under.

Should you have any questions please contact me.

Carole Uzan

Chief Compliance Officer

+33 1 86 47 64 82

carole.uzan@lseg.com
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APPENDIX

Proposed Rule changes to LCH SA CDS Clearing Rules:

• CDS Clearing Rule Book

• CDS Clearing Procedures – Section 3