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 Limited. Registered in England No. 25932 Registered Office: 10 Paternoster Square, London, EC4M 7LS

Via CFTC Portal

16 December 2022

Mr. Christopher J. Kirkpatrick

Office of the Secretariat

Commodity Futures Trading Commission

Three Lafayette Centre

1155 21st Street NW

Washington, DC 20581

LCH Limited Self Certification: Proposed Changes to the Terms of Reference of LCH Limited‘s Board 

Committees

Dear Mr. Kirkpatrick,

Pursuant to Commodity Futures Trading Commission (“CFTC”) regulation §40.6(a), LCH Limited (“LCH”), a 

derivatives clearing organization (“DCO”) registered with the CFTC is submitting for self-certification the 

proposed amendments to the Terms of Reference (“ToR”) for certain committees of its Board of Directors 

(“Board”) (collectively, the “Proposed Changes”).

The updated Terms of References will be published on the LCH website on or after 4 January 2023, and in no 

event earlier than ten (10) US business days after the filing of this self-certification with the CFTC. The text of 

the Proposed Changes is attached hereto as Appendices I, II and III.

Part I: Explanation and Analysis

This submission covers changes approved by the Board to the respective ToR of the LCH Technology, Security 

& Resilience Committee (“TSRCo”), Risk Committee (“RiskCo”), and Audit Committee (“AuditCo”) (together, 

the “Board Committees”). As part of these, the TSRCo has been renamed as the Operational Resilience 

Committee (“ORC”).

The Proposed Changes are being adopted mainly to enhance LCH’s governance documents to provide for 

improvements in the current coverage of resilience risk oversight by the relevant LCH Board Committees.

Discussions on the topic will be primarily within the ORC, as an advisory committee to the RiskCo with regards 

to this; resilience risk matters will no longer be part of the AuditCo. In addition, the RiskCo ToR have been 

amended to provide further clarity on its remit and responsibilities.

Part II: Description of Rule changes

As noted, the main objective of the Proposed Changesis to provide clarity of responsibility related to resilience 

risk. The effect of the changes is that discussions on this topic will be primarily the responsibility of the ORC, 

as advisory committee to the RiskCo with regards to that, as further explained below. The Proposed Changes

are designed to enhance efficiency and improve clarity of reporting lines to the Board.
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 Limited. Registered in England No. 25932 Registered Office: 10 Paternoster Square, London, EC4M 7LS

(i) Terms of Reference of the Operational Resilience Committee (formerly known as the 

Technology, Security and Resilience Committee) 

The ToR for the TSRCo will be revised to reflect the name change to ORC to better reflect the scope of its 

responsibilities. Conforming changes are made throughout the ToR. References to Operational Resilience Risk 

matters and policies are also made throughout the ToR. Below is an overview of the other more substantial 

changes. 

Article 1.3 will be added to the ToR to provide that the ORC will be the forum for discussion on resilience risk 

matters and will be advisory to the Risk Co with regards to these. In line with the risk taxonomy in the LCH 

Group Risk Governance Framework, the “Resilience Risks” and associated policies in the ORC scope will include 

(i) technology risk; (ii) business continuity management; (iii) information security and cyber risk; (iv) physical 

security risk; (v) third party risk; (vi) operational processes; and (vii) data management risk. The remaining 

provisions in Article 1 are renumbered to accommodate the addition.

Article 1.4.4 will be added to provide that the ORC will assist the Board in fulfilling its responsibilities related 

to the review of outsourcing and third party risk management arrangements. 

The provisions in former Article 4.2.10 will be removed in order to avoid any duplication and overlap with the 

AuditCo and also to provide the ORC with an overall mandate for the review of operational resilience matters, 

as further set out in:

- Article 4.2.13, which will be added to confirm that the ORC will provide reports and advice to the 

RiskCo on resilience risk related matters as deemed appropriate, including in cases of potential 

member impact.

- Article 4.2.14, which will add the responsibility for the ORC to approve, or recommend for approval to 

the RiskCo, Detailed Operational Risk Assessments (“DORA”)1in accordance with the Operational Risk 

Policy. This policy prescribes that the ORC may recommend approval of DORA to the RiskCo at the 

discretion of the RiskCo Chair and Article 11.3 of the RiskCo ToR will be amended to note this point as 

described in section (ii) below.

(ii) Terms of Reference of the Risk Committee

A sentence will be added in the title section to highlight that the RiskCo advises the Board on any arrangements 

that may impact the risk management of the CCP, in line with regulatory requirements under EMIR.

2

The role of LCH Group Chief Risk Officer (“CRO”) has been retired, therefore existing Article 1.2.4 is updated

to note that the CRO of the London Stock Exchange Group plc (“LSEG”) or a delegate, instead, has the right to 

attend, ex officio, the meetings of the RiskCo. Existing Article 1.2.6 is removed as redundant and Article 2.10 

will also be removed given the role of LCH Group CRO has been retired.

1 DORAs are produced by the relevant business/function (first line of defense) and reviewed by the LCH Group Risk Function (second 

line of defense). The assessment is required ahead of implementing new product initiatives, strategic projects or significant changes 

presenting operational risks that are novel or could have the potential to impact the current operational risk appetite assessment or 

platform resiliency.

2 Article 28 of Regulation (EU) No 648/2012 of the European Parliament and of the Council, as applicable in the EU and as retained 

EU law effective in the United Kingdom under the European Union (Withdrawal) Act 2018.
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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 Limited. Registered in England No. 25932 Registered Office: 10 Paternoster Square, London, EC4M 7LS

In addition, revised Article 1.2.5 will state that LCH employees, as opposed to the generic reference to other 

individuals in the LCH Group, may attend the RiskCo meetings, as determined by the Committee Chair. 

The amendments to the articles under section 3 clarify the risks within the scope of the RiskCo, also referenced 

in Article 4.2. Other clarifications about the remit of the RiskCo are made throughout the ToR. In particular, 

under relevant sections, it will be clarified that the RiskCo:

- Shall be notified of the outcome of the annual independent validation of relevant models, in line with 

applicable LCH policies;

- Will review the annual default management drill exercise report, as well as the LCH liquidity plan, 

recovery plan and wind down plan for recommendation to the Board for approval;

- May consider the addition of new collateral types and associated risk controls, subject to Board 

approval.

Section 11 on Operational Risk Management will be renamed Operational Resilience Risk and the provisions 

will be amended to clarify that the RiskCo will review, on an annual basis (or more frequently if deemed 

necessary), the Operational Resilience Risk policies, tabled by the ORC and make recommendations to the 

Board for approval. This complements the amendment made to Article 1.3 of the ORC ToR, noted under 

section (i) above. Additionally, the responsibility for RiskCo to inform the Board in a timely manner of any new 

risk affecting the resilience of LCH is added in Article 11.2. As noted above, the ORC will be the committee 

responsible for reviewing and approving DORAs, unless, at the discretion of the RiskCo Chair, the RiskCo will 

do so, as per Article 11.3.

A new section titled ‘Model Governance and Procyclicality’ has been added as section 12 to set out the 

responsibilities of the RiskCo in relation to:

- The annual review of the Model Governance, Validation and Review Policy and the Procyclicality Risk 

Policy for recommendation to the Board for approval;

- The review of reports assessing the ongoing suitability of the LCH financial risk models and whether 

they remain anti-procyclical. 

In Section 13 ESMA is added alongside the Bank of England as the authority that LCH must notify in the event 

the Board does not follow a recommendation of the RiskCo, in line with EMIR.

The title of section 16 is amended to ‘Regular Reports and Notifications’ and the provisions within the section

have been simplified to set out the scope of:

- The management information to be provided by the Chief Risk Officer (to be used to highlight any new 

significant risks on the resilience of LCH to be reported to the Board) (articles 16.1 and 16.2);

- The annual reviews by RiskCo (articles 16.3 and 16.4).

(iii) Terms of Reference of the Audit Committee 

Consistent with the changes described above, the Article 1.3.6 of the AuditCo ToR will be amended to remove 

the reference to the review of “Resilience Risk matters” as discussions on these will be the responsibility of 

the ORC.

The Article 3.3.6(a)(iv) and (v) will be removed as the oversight of business continuity, disaster recovery, and 

outsourced activities will now be within the remit of the ORC. 
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 Limited. Registered in England No. 25932 Registered Office: 10 Paternoster Square, London, EC4M 7LS

(iv) Other changes 

LCH is also making the following adjustments and administrative changes that are separate and not related to 

the main focus of this submission.

- Article 3.3.4 (e) in the AuditCo ToR is deleted as the review of the performance of the Chief Compliance 

Officer will now be taken by the Remuneration Committee.

- Article 1.7 of the RiskCo includes a clarificatory reference about the confidentiality agreement 

between LCH and users’ representatives that are members of the Committee. 

- Article 7.3 about escalating disagreement between the Board and the ORC via the Annual Report will 

be removed as, upon review, it was deemed redundant. 

- In both the ToRs of the AuditCo and RiskCo the term LCH Group is clarified and references to 

“Chairman” are replaced by “Chair”.

Part III: Core Principle Compliance

LCH has reviewed the Proposed changes against the requirements of the DCO Core Principles, and finds that 

it will continue to comply with all the requirements and standards therein. Specifically, these rule changes 

have relevance to Core Principle O (Governance and Fitness Standards) under CFTC regulation §39.24.

The changes described in this filing, which have been approved by the Board, ensure that LCH meets the 

objectives of Core Principle O, including that LCH have governance arrangements that:

(i) are clear and documented; 

(ii) include clear and direct lines of responsibility and accountability; and 

(iii) clearly specify the roles and responsibilities of the board of directors and its committees. 

As explained above, the Proposed Changes are mainly being adopted to enhance LCH’s governance framework 

and make it more efficient with regards to the management of resilience risk. By formally assigning 

responsibility for resilience risk to the most appropriate Board Committee, the Proposed changes are clarifying 

the scope and responsibility of each Board Committee and avoiding the unnecessary duplication of oversight 

responsibilities for resilience risks across the AuditCo, ORC and RiskCo.

Part IV: Public Information

LCH has posted a notice of pending certification 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 by governing board or committee members, members of LCH 

or market participants.
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 Limited. Registered in England No. 25932 Registered Office: 10 Paternoster Square, London, EC4M 7LS

Certification

LCH hereby certifies to the Commodity Futures Trading Commission, pursuant to the procedures set forth in 

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

amended, and the regulations promulgated thereunder.

Should you have any questions please contact me at valentina.cirigliano@lseg.com or Michelle Weiler at 

michelle.weiler@lseg.com.

Yours sincerely,

Valentina Cirigliano

Compliance, Regulatory Adviser

LCH Limited
LCH | Aldgate House | 33 Aldgate High Street | London EC3N 1EA | 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: Aldgate House, 33 Aldgate High Street, London EC3N 1EA

APPENDIX I

Proposed changes to Terms of Reference of the LCH Technology, Security and Resilience Committee
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LCH LIMITED

(the Company)

TERMS OF REFERENCE OF THE TECHNOLOGY, SECURITY AND RESILIENCE OPERATIONAL RESILIENCE 

COMMITTEE 

OF THE BOARD OF DIRECTORS (THE “COMMITTEE”)

Adopted by the board of directors of the Company on [9 September 2020]12 

July 2022

1. PURPOSE

1.1 The Technology, Security and Resilience CommitteeOperational Resilience Committee

(LCH Limited TSR OR Committee) (the Committee) shall be appointed by the Board of 

Directors of the Company (the Board) and shall represent the interests of the Board in 

the sound management of technology security and operational operational resilience 

including cyber security to ensure that technology security and operational resilience 

strategies, investments and outcomes support the mission, values, and strategic goals of 

the Company.

1.2 The Committee shall determine whether management has put in place adequate 

strategies and plans which include appropriate management of technical, security,

oOperational resilience Resilience Risks and cyber risks that provide reasonable 

assurance that the company operates within its risk appetite and complies with 

regulatory requirements.

1.3 Operational Resilience Risks, as defined by the Risk Governance Framework, and 

associated policies in scope of the Committee are as follows: 

1.3.1 Technology Risk;

1.3.2 Business Continuity Management;

1.3.3 Information Security and Cyber Risk;

1.3.4 Physical Security Risk;

1.3.5 Third Party Risk;

1.3.6 Operational Process; and

1.3.7 Data Management Risk.

1.31.4The Committee shall assist the Board in fulfilling its responsibility relating to:

1.3.11.4.1 Review of the Company’s Operations and Technology Strategy;

1.3.21.4.2 Review of significant investments in support of such strategy including 

application and infrastructure architecture;

1.3.31.4.3 Review of the frameworks, policies and strategies that set the internal control 

environment in relation to technology, security and operational Operational 

resilienceResilience Risks;

1.4.4 Review of the outsourcing and third party risk management arrangements of the 

Company;
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1.3.41.4.5 Review of the Operational Risk Management Framework;

1.3.51.4.6 Review of the Company’s Strategy for Cyber Security and Information Security 

and for delivery of supporting programmes;

1.3.61.4.7 Review the integration of Digital and Physical Security and their alignment 

with Business Continuity Plans;

1.3.71.4.8 Review of and assessing of the Company’s maturity against existing and 

emerging concepts of security and resilience in order to support the development 

of strategy; and

1.3.81.4.9 Providing regulatory attestations or declarations as may be required from 

time to time in relation to technology, security and operational resilience.

1.41.5The Committee shall keep itself informed of any changes in the laws and regulations 

applicable to its function and of changes in guidance from within the broader Group.

1.51.6The Committee shall provide time and capacity for discussions relating to the rapidly 

developing areas of technology, security and Ooperational resilience Resilience Risk 

matters in order to provide constructive challenge to the business and assurance to the 

Board through recommendations and advice. The Committee will help the Board 

strengthen business continuity management, risk management and regulatory 

compliance.

1.61.7Nothing in these Terms of Reference shall diminish the responsibility of the Board to 

maintain ongoing review of the Company's technology, security and oOperational 

resilience Resilience Risk policies as applicable.

2. STRUCTURE AND MEMBERSHIP

2.1 Composition

2.1.1 The Committee shall comprise no fewer than four directors of the Board, of which: 

(a) at least 50 per cent shall be independent non-executive directors of the 

Board, each of whom satisfies the criteria for independence set out in, 

the terms of reference of the Company's Nomination Committee (the 

Independent Directors) and one of such Independent Directors shall be 

appointed chairman of the Committee (the Committee Chairman); and

(b) at least one shall be a member of the Audit Committee of the Company. 

2.1.2 Members of the Committee shall ideally have significant, recent and relevant 

experience of the operations of LCH and its dependence on technology, but the 

Committee as a whole should have a breadth of experience to enable alignment 

with financial risk management, regulatory requirements and audit. 
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2.2 Other technology Operational Resilience Risk expert individuals, as considered 

appropriate by the Committee, may attend the meetings of the Committee on relevant 

matters from time to time, in a non-voting capacity.

2.3 Selection and Removal

2.3.1 Members of the Committee shall be selected and appointed by the Board at any 

time in consultation with the Committee Chairman. 

2.3.2 The Board may remove members of the Committee with or without cause.

2.4 Committee Chairman

2.4.1 The Board normally elects the Committee Chairman. On an exceptional basis and 

in the absence of the appointed Committee Chairman, the Committee shall elect 

a substitute Committee Chairman from amongst its ranks by majority vote.

2.4.2 The Committee Chairman will keep the Committee's composition under review 

and shall make proposals to the Board accordingly.

2.5 Secretary

2.5.1 The secretary to the Committee (the Committee Secretary) shall be the Company 

Secretary or such other person as he or she may nominate.

2.5.2 The Committee shall have access to sufficient resources in order to carry out its 

duties, including access to the Company Secretariat for assistance as required and, 

where deemed necessary or appropriate, to professional advisers. 

2.6 Notice of Meetings

2.6.1 Notice of meetings shall be given by the Committee Chairman, or the Committee 

Secretary at the request of the Committee Chairman.

2.6.2 Unless otherwise agreed, notice of each meeting confirming the venue, time and 

date, together with an agenda of items to be discussed, shall be forwarded to 

each member of the Committee and any other person required or permitted to 

attend prior to the date of the meeting in a timely manner. Supporting papers 

shall be sent to Committee members, and to other attendees as appropriate, at 

the same time.

2.7 Frequency of Meetings and Location

The Committee shall meet as frequently as it determines necessary, but not less 

frequently than four times per year. Other than in exceptional circumstances, all 

meetings shall be held in one of the registered offices of the group entities. The 

Committee Chairman, or any other member of the Committee, may call meetings of the 

Committee.

2.8 Attendance

2.8.1 Only members of the Committee have the right to attend Committee meetings.

2.8.2 Members of the Company’s executive and the Head of Internal Audit may attend 

the meetings by invitation as and when appropriate and necessary, in accordance 

with items on the agenda.
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2.8.3 The Committee may hold meetings in person, by telephone or by video 

conference.

2.9 Quorum

The quorum for meetings shall be two members of the Committee, one of whom shall be 

an independent Non-Executive Director. A duly convened meeting of the Committee at 

which a quorum is present shall be competent to exercise all or any of the authorities, 

powers and discretions vested in or exercisable by the Committee. 

For the purposes of fulfilling the quorum requirements, a member of the Committee may 

provide the Chairman or another member of the Committee with their proxy, provided 

that the proxy is notified to the Chairman and the Secretary prior to the meeting.

2.10 Conduct of Meetings

Except as outlined above, meetings of the Committee shall be conducted in accordance 

with the provisions of the Company's articles of association governing the proceedings of 

directors.

2.11 Remuneration

The remuneration of Committee members shall be as determined by the Board. No 

member of the Committee may receive any consulting, performance, advisory or other 

compensatory fee from the Company other than fees paid in his or her capacity as a 

member of the Board or as a member of a Committee of the Board.

3. REPORTS TO THE COMMITTEE

3.1 The Committee shall receive and review periodic management information for relevant

operations and technology metrics and align its meeting schedule with the requirements 

of the Board.

4. AUTHORITY AND RESPONSIBILITIES

4.1 The Committee’s role is one of review. The Committee will also provide support and

alignment with other committees to the Board.

4.2 The Committee shall perform the following specific functions:

4.2.1 Review the Company’s operations and technology strategy and Operational 

Resilience Risk policies including application and infrastructure architecture.

4.2.2 Review and, as appropriate, make recommendations to the Board regarding 

significant technology investments in support of the Company’s technology 

strategy. 

4.2.3 Review and, as appropriate, make recommendations to the Board regarding the 

resources and delivery of the Company’s technology programmes.

4.2.4 Review any IT resilience, cyber and information security programmes, track 

progress in relation to such programmes and provide reports to the Board as 

appropriate.

4.2.5 Review any significant operations and technology risk exposures of the 

Company, including (i) review of any detailed operational risk assessments with 
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significant IT elements (ii) information security and cyber security risks together 

with the steps management has taken to monitor and control such exposures.

4.2.6 Review and consider, where appropriate, the Company’s risk management and 

risk assessment guidelines and Operational Resilience Risk policies regarding 

operations and technology risk.

4.2.7 Review the Company’s integrated security and resilience, including review of 

any new or novel approaches to IT including security and resilience.

4.2.8 Review and receive reports from management regarding the Company’s 

Business Continuity Management planning and develop oversight of Business 

continuity management and disaster recovery.

4.2.9 Receive reports, as appropriate, from the Audit Committee regarding the 

results of reviews and assessments of the Company’s operations and 

technology functions.

4.2.10 Review and receive reports on technology outsourcing.

4.2.10 Review and receive reports, as appropriate, on operations and agreed metrics 

in conjunction with the Audit Committee.

4.2.111.1.1Review and receive reports on technology outsourcing.

4.2.124.2.11 Receive reports from management, as and when appropriate, on 

industry trends that may affect the Company’s technology strategy.

4.2.12 Coordinate with Management and other Board Committees as may be 

necessary in discharging its authorities and responsibilities and provide reports 

to such other Board Committees as may be appropriate.

4.2.13 Provide reports and advice to LCH Limited Risk Committee on specific 

Operational Resilience Risk related matters as deemed appropriate, including 

where it is determined that a potential member impact may result.

4.2.14 Approval orrecommendation of Detailed Operational Risk Assessments (DORAs)

to the Risk Committee in accordance with the Operational Risk Policy.

4.3 The Committee shall consider any other matters as directed by the Board.

4.4 The Chair of the LCH Limited TSR OR committee Committee shall be a standing member 

of the Audit Committee and may be invited to attend the meetings of the Risk Committee 

on relevant matters from time to time, in a non-voting capacity, and may make 

presentations to both Committees.
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5. PROVISIONS FOR ACCESS

5.1 Access to Management

The Committee shall have full and unrestricted access to the Group’s management and 

employees. All employees are directed to co-operate with any requests made by the 

Committee.

5.2 Access to Outside Advisers

The Committee is authorised by the Board, at its discretion, to obtain independent 

professional advice and to secure the assistance of outsiders with relevant expertise. This 

shall apply both to the Committee as a whole and to individual Committee members. 

Costs relating to the provision of advice shall be borne by the Company.

5.3 Access to Company Information

The Committee shall have full and unrestricted access to any systems, records, facilities 

or other data it requires from the Company or other members of the LCH Group in order 

to carry out its functions.

6. REPORTING

6.1 Minutes / Agenda. The Committee Secretary shall minute the proceedings and

resolutions of all meetings of the Committee, including recording the names of those 

present and in attendance, and such minutes shall be presented to the Committee for 

approval at the next following meeting.

6.2 Board Reporting. The Committee Chairman shall report the Committee's discussions, 

decisions and recommendations to the Board, which shall decide on an appropriate policy 

response.

6.3 The Committee shall have no executive powers with respect to those findings and 

recommendations.

6.4 Annual Reports. The Committee Chairman, or his or her designee, will make available to 

the Chief Compliance Officer of the Company such information relating to the 

Committee's work as is necessary for the Chief Compliance Officer of the Company to 

draft and submit the annual compliance reports required by applicable regulations in 

force from time to time.

7. CONFIDENTIALITY AND CONFLICTS OF INTEREST

7.1 All confidential matters considered by the Committee and any confidential information

disclosed to members of the Committee in connection with their position as a member 

of the Committee must remain confidential, notwithstanding the company to which that 

information relates, nor whether the member is a director of that company or not, save 

as required to be disclosed by law or regulation. Any other persons involved in the 

Committee’s work shall either be bound by undertakings of professional secrecy or by ad 

hoc confidentiality agreements with the Committee.

7.2 Conflicts of interest relating to Committee members shall be governed by the relevant 

articles in the articles of association of the Company from time to time.
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7.3 Any disagreement within the Board, including disagreement between the Committee’s 

members and the rest of the Board, should be resolved at Board level. Where 

disagreements between the Committee and the Board cannot be resolved, the 

Committee has the right to report the issue to the shareholders through the Company's 

annual report.
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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 Limited. Registered in England No. 25932 Registered Office: 10 Paternoster Square, London, EC4M 7LS

APPENDIX II

Proposed changes to Terms of Reference of the LCH Risk Committee
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CORPORATE

LCH LIMITED

(the Company)

TERMS OF REFERENCE OF THE RISK 

COMMITTEE OF THE BOARD OF DIRECTORS

Adopted by the board of directors on 9 September 202023 November 2022

The Board of Directors of LCH Limited have established a Risk Committee to advise the Board 

on any arrangements that may impact the risk management of the CCP.

1. COMPOSITION

1.1 The Risk Committee (the Committee) shall, subject to paragraph 1.4 below and subject

to any co-option as referred to in paragraph 1.11 below, comprise:

1.1.1 such number of independent non-executive directors that is required from 

time to time each of whom has been appointed either (i) in accordance with, 

and satisfies the criteria for independence set out in, the terms of reference of 

the Company's nomination committee (the Nomination Committee) or (ii) in 

the case of the Vice ChairmanChair of the Committee (the Vice 

ChairmanChair), who has been appointed pursuant to paragraph 1.4 below, 

satisfies all applicable corporate governance standards of independence (each, 

an Independent Director). One of the Independent Directors will be the 

ChairmanChair of the Committee (the Committee ChairmanChair) nominated 

by the board of directors of the Company (the Board) and one will be the Vice 

ChairmanChair of the Committee, if relevant, appointed pursuant to paragraph 

1.4 below;

1.1.2 such number of members who represent a clearing member of the Company 

or part of the group to which a clearing member belongs that is required by 

law or regulation from time to time and who have significant expertise and 

experience in market, credit or, liquidity or operational risk management or 

other risk disciplines related to CCP risk management (each, a User); and

1.1.3 such number of end-client representatives of Users (who shall have significant 

expertise and experience in risk-related, audit, regulatory or compliance 

issues) that is required by law or regulation from time to time (each, a Client).

provided that: (1) the Committee ChairmanChair is an Independent Director; (2) at 

least one but not more than 50% of Committee members are Independent Directors; 

(3) at least one but not more than 50% of Committee members are Users; (4) at least 

one but not more than 50% of Committee members are Clients; and (5) no User or 

Client representatives are also employees of the Group (as defined belowany LCH 

Group company (meaning LCH Group Holdings Limited and its subsidiaries).

1.2 The following individuals may be invited to attend the meetings of the Committee on 

relevant matters from time to time, in a non-voting capacity:
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1.2.1 the ChairmanChair of the Audit Committee of the Company;

1.2.2 ex officio the Chief Executive Officer of the Company;

1.2.3 ex officio the Chief Risk Officer of the Company who shall be responsible for all 

technical issues and recommendations made to the Committee;

1.2.4 ex officio the Chief Risk Officer of LCH Group Holdings Limited (LCH Group

and together with its subsidiaries, the Group);the London Stock Exchange 

Group plc, (LSEG) or their nominated delegate;

1.2.5 ex officio the Chief Executive Officer of LCH Group;

1.2.6 ex officio the Head of Financial Risk of the London Stock Exchange Group plc, 

(LSEG) or their nominated delegate;

1.2.71.2.5 such other individuals within the GroupLCH Ltd employees as 

considered appropriate by the Committee Chair; and

1.2.81.2.6 such other risk expert individuals who are representatives of Users of 

the Company (who are not already represented by a voting member of the 

Committee) as considered appropriate by the Committee (hereafter the Risk 

Expert Attendees). The Committee ChairmanChair may, at his or hertheir

discretion, allow a Risk Expert Attendee to become a voting member of the 

Committee in place of an incumbent User Committee member, provided such 

Risk Expert Attendee meets the criteria set out in paragraph 1.1.2 above and 

that at any given time Users account for no more than 50% of the Committee 

(in accordance with paragraph 1.1 above).

1.3 Members of the Committee shall be appointed by the Board in consultation with the 

Committee ChairmanChair, provided that Users shall be appointed in line with the 

procedure set out in Appendix I, and save for the Vice ChairmanChair who shall be 

appointed pursuant to paragraph 1.4 below.

1.4 LSEG shall be entitled to appoint the Vice ChairmanChair to the Committee, provided 

that such person has the skills and experience commensurate with such a role.

1.5 The Vice Chairman’sChair’s role is to take over the responsibilities of the 

ChairmanChair to the extent the ChairmanChair is unavailable to attend a Committee 

meeting.

1.6 Committee members that are neither Independent Directors nor the Vice 

ChairmanChair (each, an External Committee Member) attend in their capacity as risk 

experts and represent the clearing membership or end-user clients (as the case may 

be) as a whole.

1.7 Only one External Committee Member from each User or Client (or, if any are part of 

a group, the group to which such User or Client belongs), is permitted. External 

Committee Members will do their best to contribute both their own expertise and the 
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expertise of the User or Client (or group, if appropriate) for which they work for all 

markets and products which the User or Client (or group, if appropriate) clears with 

the Company. Where expertise other than the specialty of the External Committee 

Member is required, they willmay, subject to the restrictions set out in their 

confidentiality agreement with LCH Ltd, consult internally prior to the Committee 

meeting. Papers will be issued in good time to permit this.

1.8 User and Client membership of the Committee will be reviewed on an annual basis at 

a minimum. The metric for determining which Users and Clients are members of the 

Committee will be based on factors including the asset classes cleared, volume 

cleared, the level of contribution to the relevant default funds and whether they have 

previously been a voting member of the Committee.

1.9 The Company secretary or his or hertheir appointed nominee shall be secretary of the 

Committee (the Committee Secretary).

1.10 The Committee ChairmanChair, Vice ChairmanChair and Committee Secretary will 

together seek to ensure that the Committee has a suitable range of expertise to 

consider and evaluate the risk matters placed before it, with particular reference to 

changes in the risks managed by the Company.

1.11 The Committee may co-opt any person, either for consideration of an individual 

subject or for a longer period.

1.12 The Committee may set up one or more advisory groups for the purpose of reporting 

back to it on specific issues. The Committee shall not delegate any of its powers or 

responsibilities set out herein to any such advisory group.

1.13 Subject to paragraph 1.4, the Board may remove members of the Committee with or 

without cause.

1.14 It is acknowledged that competent regulatory authorities shall have the right to 

request to attend Committee meetings in a non-voting capacity and be duly informed 

of the activities and decisions of the Committee.

2. CONDUCT OF MEETINGS

2.1 Notice of meetings shall be given by the Committee ChairmanChair, or the Committee 

Secretary at the request of the Committee ChairmanChair.

2.2 Save for in exceptional circumstances, (i) notice of each meeting confirming the venue, 

time and date, together with an agenda of items to be discussed, shall be forwarded 

to each member of the Committee and any other person required to attend prior to 

the date of the meeting in a timely manner and (ii) supporting papers shall be sent to 

Committee members, and to other attendees, as appropriate, at least 72 hours before 

the start of each meeting.

2.3 In exceptional circumstances the ChairmanChair has the discretion to convene a 

meeting of the Committee on short notice.
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2.4 Meetings shall be held a minimum of six times per year, or more frequently according 

to the business to be considered.

2.5 Other than in exceptional circumstances, all meetings shall be held in one of the 

registered offices of the LCH Group entities.

2.6 Committee members, including External Committee Members, are encouraged to 

attend Committee meetings in person. Meetings can however be attended by audio 

or video conference facilities if necessary.

2.7 A quorum shall consist of a majority of the Committee members, including the 

Committee ChairmanChair or Vice ChairmanChair who shall at his or hertheir sole 

discretion decide whether to defer decisions or recommendations on certain items in 

the light of the balance of attendance. Exceptionally, the Committee ChairmanChair

or Vice ChairmanChair may nominate another Independent Director to represent 

them.

2.8 Decisions will be taken by consensus. If no consensus can be reached then the topic 

shall be put to a vote. All voting members of the Committee have one vote. The 

decision will be taken by simple majority of those present at the meeting. A decision 

requires the majority of the Independent Directors present at the meeting to vote in 

favour.

2.9 The Committee ChairmanChair and/or Vice ChairmanChair shall report to the Board 

of the Company on the discussions, decisions and recommendations of the 

Committee. in order for the Board to formally ratify these decisions and 

recommendations. The Committee Secretary shall make all minutes available to the 

Board, and the Committee ChairmanChair of the Audit Committee of the Company 

and the LCH Group Board.

2.10 The Group Chief Risk Officer shall notify the board of directors of LCH Group of the 

discussions and recommendations of the Committee which affect the Group and the 

Board shall consider any views expressed by the LCH Group Board when making 

decisions based on such discussions and recommendations of the Committee 

(provided that, for the avoidance of doubt, the LCH Group Board shall have no veto in 

respect of such decisions made by the Board).

PURPOSE OF THE COMMITTEE

3. RISK APPETITE AND SCOPE

3.1 To consider and comment on aspects of the Company's risk appetite, tolerance and

strategy, taking account of the current and prospective macroeconomic and financial

environment, as reported upon regularly at Committee meetings. Certain corporate

risks are not reported to the Risk Committee but to the Audit Committee or directly

to the Board.

3.2 The risks within scope for the LCH Ltd Risk Committee are Financial and Model Risks, 

and Operational Resilience Risks.
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4. EXECUTIVE RISK COMMITTEE

4.1 To receive advice, recommendations and updates (as applicable) from the Executive 

Risk Committee of the Company (ERCo) in respect of the areas to which the ERCo's 

delegated powers, described in these Terms of Reference, apply and in respect of 

proposed revisions to the risk policies and risk methodology subject to the ERCo's 

oversight and review.

4.2 To receive a detailed report from the ERCo which, for the risks defined within scope 

in paragraph 3.2, includes (i) the risk profile of the Company and the Group on a 

monthly basis and its evolution over time, (ii) qualitative comments from the ERCo 

and the Chief Risk Officer of the Company in relation to areas of potential concern, 

and (iii) a particular focus on concentration risk and members' margin circumstances.

5. CLARIFICATION OF POWERS DELEGATED TO THE CHIEF EXECUTIVE OFFICER OF THE 

COMPANY

5.1 Under powers formally delegated by the Board, the Chief Executive Officer of the 

Company has responsibility for all risk decisions taken within the framework of agreed 

risk policies. This explicit delegation of powers is considered necessary to formally 

preserve the independence of risk management, to avoid conflicts of interest if the 

Board or Committee was involved in the decision taking, and to ensure a timely 

response to situations which may develop or deteriorate rapidly.

5.2 The delegated powers establish a boundary line between the Committee's role in 

respect of policy review and recommendation and executive responsibility for risk 

management actions within the agreed policy framework.

5.3 The Chief Executive Officer may delegate any and all of their responsibilities referred 

to in these Terms of Reference to the Chief Risk Officer of the Company and/or the 

ERCo.

6. CCP MEMBERSHIP

6.1 To review, on a periodic basis, criteria for initial admission to clearing membership and 

continuing membership criteria, to consider proposals for new criteria, and to make 

recommendations to the Board for approval.

6.2 To review decisions of the Chief Executive Officer of the Company or their delegate 

relating to approvals and denials of membership applications.

6.3 To review annually the Counterparty Credit Risk Policy and to make recommendations 

to the Board for approval. This review should include data on the previous year's 

changes in overall membership, specific aggregate information on the nature of the 

new members (if any) and their risk profile (if different from the existing membership), 

together with an assessment of any potential policy implications.
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6.4 To be notified of the outcome of the annual independent validation of the 

counterparty credit scoring model in accordance with the Model Governance, 

Validation and Review Policy.

6.46.5 Clarification of approvals delegated to the ERCo of the Company:

6.4.16.5.1 Pursuant to paragraph 6.1 above, application by a current clearing 

member to extend its clearing activities vis-a-vis the Company may be 

approved by the ERCo of the Company subject to the Committee being 

notified. The ERCo of the Company may, at its discretion, refer any such 

applications for consideration by the Committee.

6.4.26.5.2 Pursuant to paragraph 6.3 above and without prejudice to the 

Committee's authority under paragraph 6.2 above, new membership 

applications may be approved by the ERCo of the Company subject to the 

applicant meeting the criteria determined by the Committee (and endorsed by 

the Board) subject to the Committee being notified of any such approvals. If 

an applicant is rejected by the ERCo of the Company, it may appeal to the 

Committee. If, before coming to a decision, the ERCo of the Company has 

particular concerns regarding the applicant, it may exceptionally refer such an 

application for consideration by the Committee.

7. NEW CLEARING ACTIVITY : NEW MARKETS AND CONTRACTS

7.1 To consider the risk controls designed or adapted for the clearing of a new market 

(whether in the form of an exchange, or of a new product-specific OTC clearing 

service) or of a new class of instruments and to make recommendations to the Board 

for approval.

7.2 To consider the risk controls designed or adapted for the clearing of a new contract 

proposed by a cleared exchange, or a new product type proposed for the Company's 

clearing service and to make recommendations to the Board for approval.

7.3 To consider the risk controls designed or adapted for the continued clearing of an 

exchange contract or OTC clearing service product whose proposed terms have been 

significantly modified and to make recommendations to the Board for approval.

7.4 To review on an annual basis (or more frequently if deemed necessary) the Contract 

and Market Acceptability Policy and to consider proposals for the amendment of the 

policy and to make recommendations to the Board for approval.

7.5 To review on an annual basis a report outlining the compliance of all markets and 

products against the criteria defined in the Contract and Market Acceptability Policy. 

7.57.6 To review on an annual basis (or more frequently if deemed necessary) the policy 

containing the principles for managing the counterparty risk of other central 

counterparties with which an interoperability link has been established (the Financial 

Resource Adequacy Policy) and to make recommendations to the Board for approval.
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7.67.7 Clarification of approvals delegated to the ERCo of the Company:

7.6.17.7.1 Pursuant to paragraph 7.2 above and without prejudice to the 

Committee's authority contained therein, approval for the clearing of new 

contracts or, products or trade venues which present no novel risk features 

and require no amendment of risk controls may be granted by the ERCo of the 

Company, subject to the Committee being notified of any such approvals. The 

ERCo of the Company may, at its discretion, refer any such applications for 

consideration by the Committee.

7.6.27.7.2 In cases where the proposal is that the Company should clear a 

potentially large number of new contracts or products, none of which present 

novel risk features, the proposal will be presented for Committee review and 

recommendation to the Board for approval, because of the proposed scale of 

the extension of clearing.

8. MARGINING

8.1 To consider proposals for significant amendments to, or the introduction of new, 

variation margin methodologies and to make recommendations to the Board for 

approval.

8.2 To review, on an annual basis (or more frequently if deemed necessary), the initial 

margin policies contained within the Financial Resource Adequacy Policy and consider 

amendments to the policy, and to make recommendations to the Board for approval.

8.3 To consider proposals for significant amendments to, or the introduction of new, 

initial margin methodologies and to make recommendations to the Board for 

approval.

8.4 To be notified of the outcome of the annual independent validation of all margin 

models in accordance with the Model Governance, Validation and Review Policy.

8.48.5 To review, on an annual basis (or more frequently if deemed necessary), the 

company's intra-day calling policy contained within the Financial Resource Adequacy 

Policy and to consider proposals for the adoption of a new policy and to make 

recommendations to the Board for approval.

8.58.6 Clarification of powers delegated by the Board to the Chief Executive Officer of the 

Company:

8.5.18.6.1 The establishment and regular review of initial margin parameters at 

contract level, the introduction of higher initial margin parameters or other 

financial requirements specific to a member or a group of members, and intraday calls under the current policy.

8.68.7 Clarification of powers delegated to the ERCo of the Company:
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8.6.18.7.1 In the context of initial margin rate setting policies, contained within the 

Financial Resource Adequacy Policy approved by the Committee and the 

Board, and with reference to the powers in respect of initial margin rates 

delegated to the Chief Executive Officer of the Company, the ERCo of the 

Company shall ensure that any rate that does not directly flow from any of the 

policies is documented as exceptional treatment. The reason for such 

treatment must be either that a disproportionate and unrealistic margin rate 

would otherwise have been established or that application of the documented 

policy would lower a rate or rates at a time of significant volatility and run a 

high risk of rapid reversal. The ERCo of the Company will ensure that the 

Committee is informed of such treatment in the case of major contracts as part 

of standard reporting of margin adequacy.

9. DEFAULT FUND, DEFAULT RULES AND DEFAULT PROCEDURES

9.1 To review, quarterly, and on an ad hoc basis as initiated by the Chief Risk Officer of the 

Company, the adequacy of the default funds of the Company (the Default Funds) on 

the basis of stresstesting figuresand reverse stress testing reports, and to recommend 

any changes in the methodologies for sizing the Default Funds to the Board for 

approval. To review, on an annual basis (or more frequently if deemed necessary), the 

Default Fund policies contained in the Financial Resource Adequacy Policy and 

recommend any changes to these policies to the Board for approval.

9.2 To consider any adjustment to the stress testing model or the assumptions used in the 

model and to make recommendations to the Board for approval.

9.3 To consider any proposals to adopt a new stress-testing model and to make 

recommendations to the Board for approval.

9.4 To be notified of the outcome of the annual independent validation of all stress testing 

models used to size the default funds in accordance with the Financial Resource 

Adequacy Policy.

9.49.5 To consider any proposals for changes to the Default Rules and to make 

recommendations to the Board for approval.

9.59.6 To consider the default management policyDefault Management Policy for managing 

a default across individual and multiple product lines and to make recommendations 

to the Board for approval.

9.7 To review default management fire drill exercise reports to assess the Company’s 

default management process.

9.69.8 To consider, as soon as possible after a member default, the default procedures taken 

and the continued adequacy of the Default Rules and to make recommendations to 

the Board for approval.

9.79.9 The Committee will be notified of any significant amendments, additions or deletions 
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to the stress testing scenarios. The Committee may also request new scenarios to be 

added to the stress testing model.

9.89.10Clarification of powers delegated by the Board to the Chief Executive Officer of the 

Company:

9.8.19.10.1 Pursuant to paragraph 9.1 above, the periodic recalculation of the 

Default Fund size and contributions, the stress test parameters as well as the 

review of the cap and floor of the Default Fund where applied, within the 

scope of the policy approved by the Board.

9.8.29.10.2 Pursuant to paragraph 9.5 above, under the delegated powers default 

declaration and management are an executive responsibility, subject to a 

commitment to notify the Board and convene a meeting of the Board if 

appropriate.

10. PAYMENT AND MONEY SETTLEMENT ARRANGEMENTS, BANK EXPOSURES, 

LIQUIDITY RISK AND COLLATERAL POLICY

10.1 To review, on an annual basis (or more frequently if deemed necessary), the 

Company's payment and money settlement arrangements and collateral custody 

arrangements contained within the Payment, Settlement and Custody Policy and to 

consider proposals for modification of those arrangements and to make 

recommendations to the Board for approval.

10.2 To review, on an annual basis (or more frequently if deemed necessary), the 

Company's 'InvestmentInvestment Risk Policy'Policy for setting bank limits and 

'LiquidityLiquidity Risk Policy'Policy for determining liquidity needs, to consider 

proposals to change these policies, and to make recommendations to the Board for 

approval.

10.3 To review, on an annual basis (or more frequently if deemed necessary), the 

Company’s Liquidity Plan detailing how the standards contained in the Liquidity Risk 

Policy are applied, to consider proposed changes and to make recommendations to 

the Board for approval.

10.4 To be notified of the outcome of the annual independent validation of the liquidity 

risk model, in accordance with the Liquidity Risk Policy.

10.310.5 To review, on an annual basis (or more frequently if deemed necessary), the 

Company's policy on acceptable forms of collateral contained within the Collateral 

Risk Policy together with the haircuts applied and to consider proposals to change 

these policies and to make recommendations to the Board for approval. To consider 

the addition of a new collateral type and associated risk controls and to recommend 

to the Board for approval.

10.6 To be notified of the outcome of the annual independent validation of the collateral 

haircut model in accordance with the Collateral Risk Policy.
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10.410.7 Clarification of discretion delegated to the ERCo of the Company:

10.4.110.7.1 Pursuant to paragraph 10.2 above, to decrease or remove investments 

or a counterparty's investment limits if there are concerns over the investment 

or counterparty for any reason.

10.4.210.7.2 To approve proposals for the periodic adjustment of exposure limits 

within the scope of the Credit Risk Management Framework approved by the 

Committee.

10.4.310.7.3 To change repo limits in line with the size of the cash portfolio to ensure 

that the assigned limits do not act as a constraint on securing the portfolio.

10.4.410.7.4 If any of the limits or restrictions detailed in the Collateral Risk Policy 

and/or the Investment Risk Policy are breached, that breach must be (i) 

notified to the ERCo and Head of CaLM, (ii) signed off by either the ERCo or the 

Head of CaLMthe Chief Risk Officer and (iii) reported to the Committee, the 

Chief Executive OfficersOfficer of the Company and the Group and the Audit 

Committee of the Company.

11. OPERATIONAL RESILIENCE RISK MANAGEMENT

11.1 To review, on an annual basis (or more frequently if deemed necessary), the 

Company's Operational Risk Policy andResilience Risk policies, following review by the 

LCH Limited Operational Resilience Committee, and to make recommendations to the 

Board for approval.

11.2 The Committee shall inform the Board in a timely manner of any new risk affecting the 

resilience of the Company.

11.3 To review and approve, as directed by the Risk Committee Chair, the 

recommendations of the Operational Resilience Committee in relation to Detailed 

Operational Risk Assessments for significant projects and new products, as required 

under the Company’s Operational Risk Policy, and to notify the Board of the same.

12. MODEL GOVERNANCE AND PROCYCLICALITY

11.112.1 To review annually (or more frequently if deemed necessary) the Company's 

Model Governance, Validation and Review Policy, to consider proposals for 

modification of those arrangements and to make recommendations to the Board for 

approval.

11.2 On request by the Audit Committee or the Board to review and provide advice on any 

aspects of the Company’s operational risk management framework.

12.2 In accordance with the Model Governance, Validation and Review Policy, to review 

reports prepared by independent model experts confirming the ongoing suitability of 
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the company’s financial risk models, at least annually and upon material change.

11.312.3 To review a Detailed Operationalannually (or more frequently if deemed 

necessary) the Company’s Procyclicality Risk AssessmentPolicy, to consider proposals

for all significant projects and new products as required under the Company’s 

Operational Risk Policymodification of those arrangements and to make 

recommendations to the Board for approval.

12.4 To review, at least annually, reports confirming that the Company’s risk models do not 

operate in a procyclical manner.

12.13. REGULATORY ISSUES

12.113.1 To consider any risk policy-related regulatory issues referred to it and to make 

recommendations to the Board for approval.

13.2 To review, on an annual basis (or more frequently if deemed necessary), the 

Company's Recovery Plan and Wind Down Plan, to consider proposals for modification 

of those arrangements and to make recommendations to the Board for approval.

12.213.3 To consider any issue relating to the outsourcing of functions which may impact 

the risk management of the Company and to make recommendations to the Board for 

approval.

12.313.4 To ensure that the Company reports promptly to the relevant regulatory 

authorities, within 5 days of any meeting of the Board, any decision in which the Board 

has rejected a recommendation of, or superseded an action by, the Committee, such 

report to contain at a minimum the following:

12.3.113.4.1 the Committee's recommendation or action, as applicable;

12.3.213.4.2 the rationale for such recommendation or action;

12.3.313.4.3 the rationale of the Board for rejecting such recommendation or 

superseding such action; and

12.3.413.4.4 the course of action the Board decided to take contrary to such 

recommendation or action.

12.413.5 The Committee ChairmanChair, or his or hertheir designee, will make available 

to the Chief Compliance Officer of the Company such information relating to the 

Committee's work as is necessary for the Chief Compliance Officer of the Company to 

draft and submit:

12.4.113.5.1 the Company's annual compliance report (i) to the Bank of England, 

Treasury and the CMA as required under UK law and regulations in force from 

time to time and (ii) to the CFTC as required under the CFTC Rules in force from 

time to time and any successor regulation; and
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12.4.213.5.2 any other reports that the Chief Compliance Officer of the Company may 

from time to time be required to submit, pursuant to regulatory requirements.

It is noted that in the event that the Board does not follow a recommendation of the 

Committee, the Bank of England, as lead regulator of the Company, and the European 

Securities and Markets Authority (ESMA) will be notified by the Company Secretary.

13.14. MISCELLANEOUS

13.114.1 To discharge any duties ascribed to the Committee in the GroupLCH risk policies 

reviewed by the Committee from time to time.

13.214.2 To consider any other matters as directed by the Board.

13.314.3 To hold meetings periodically either separately from or, if considered 

appropriate by the Committee, jointly with the Risk Committee of LCH SA and the Risk 

Committees of any other operating subsidiaries of LCH Group as there may be from 

time to time.

14.15. PUBLICATIONS

14.115.1 The Committee shall ensure that summaries of significant decisions implicating 

the public interest, including all decisions relating to (i) open access; (ii) membership; 

and (iii) the finding of products acceptable or not acceptable for clearing, including a 

description regarding whether the Board has rejected or superseded an action of the 

Committee, shall be made public on the Company's website in an up to date, clear and 

accurate manner.

15.16. REGULAR REPORTS AND NOTIFICATIONS

16.1 The Committee shall consider and review regular reports prepared byTo receive 

management information from the Chief Risk Management departmentOfficer of the 

Company whichon the assessment of all financial, model and operational resilience

risks, and inform the Board in a timely manner of any new significant risk changes

affecting the resilience of the Company. The report will include any breaches and 

waivers granted.

16.2 The management information shall cover recent developments inand material issues 

related to Financial and Model Risks, and Operational Resilience Risks. 

15.116.3 To review at least the following areas:annually risk tolerance limits and the 

associated warning thresholds (via the policies and procedures containing these 

metrics).

15.1.1 Membership (additions, deletions, extensions to business cleared, and other 

significant developments);

15.1.2 Operation and adequacy of margin rate setting (back testing) and of the 

default fund (as revealed by the stress test results);
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15.1.3 Operation of the Liquidity Risk policy;

15.1.4 Operation of the Counterparty Credit Risk policy;

15.1.5 Operation of the Collateral Risk policy;

15.1.6 Operation of the Payment, Settlement and Custody policy;

15.1.7 Operation of the Investment Risk Policy; and

15.1.8 Any other material issues which have arisen during the previous three 

months for any risk policy or its implementation. 

16.4 To review at least annually the specific / formal sign-off of exceptions to LCH policies.

16.17. CONFIDENTIALITY AND CONFLICTS OF INTEREST

16.117.1 Without prejudice to any rights of LSEG or its representatives under these 

Terms of Reference, all confidential matters considered by the Committee and any 

confidential information disclosed to members of the Committee in connection with 

their position as a member of the Committee must remain confidential, 

notwithstanding the company to which that information relates, nor whether the 

member is a director of that company or not, save as required to be disclosed by law 

or regulation. Any other persons (with the sole exception of competent regulatory 

authorities) involved in the Committee’s work shall either be bound by undertakings 

of professional secrecy or by ad hoc confidentiality agreements with the Committee.

16.217.2 Conflicts of interest relating to Committee members shall be governed by the 

relevant articles in the articles of association of the Company from time to time and 

those relevant articles shall apply to the External Committee Members as if they were 

directors of the Company.

17.18. HARMONISATION WITH LCH SA

17.118.1 To consider any proposals for harmonisation of policies or procedures between 

the Company, LCH SA and any other operating subsidiaries of LCH Group as there may 

be from time to time, having regard to local law or regulatory requirements and 

liquidity characteristics of the relevant entity in the Group and to make 

recommendations to the Board for approval.

17.218.2 In the event that the Risk Committees of the Company, LCH SA and any other 

operating subsidiaries of LCH Group as there may be from time to time cannot agree 

on the harmonisation issues, the LCH Group Board and the Board of the relevant 

operating subsidiary together are responsible for the final decision.

18.19. RELATIONSHIP WITH THE COMPANY'S AUDIT COMMITTEE

18.119.1 Internal audits, external audits, investigations and reviews carried out under the 

auspices of (and contained in the relevant regular reporting to) the Company's Audit 

Committee will cover those departments and teams executing the policies and 
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methodologies set by the Risk Committee.

19.20. AUTHORITY

19.120.1 The Committee is authorised to: (i) investigate any activity relating to these 

Terms of Reference; (ii) seek any information it requires from any employee of the 

Company in order to perform its duties; (iii) call any employee to be questioned at a 

Committee meeting as and when required; and (iv) obtain at the Company's expense, 

outside legal or other professional advice on any matter within its Terms of Reference.

19.220.2 In particular, the Committee shall have access to: (i) the risk management 

department; (ii) the human resource department (to assess how the remuneration 

structure affects the risk profile of the Company); (iii) the human resource 

department; (iii) the compliance department (to ensure legal and regulatory changes 

are properly implemented); and (iv) the internal audit department.

20.21. OTHER

20.121.1 Notwithstanding any other provision set out herein, the Committee is solely 

accountable to, and reports solely to, the Board. Without limiting the foregoing, no 

decisions made by the Committee under paragraph 6 (Membership) or paragraph 7 

(New Clearing Activity: New Markets and Contracts) may be restricted or otherwise 

limited by any body other than the Board.

20.221.2 Every member of the Committee shall be given a copy of these Terms of 

Reference.

20.321.3 The Committee, in particular the Independent Directors, shall be provided with 

appropriate and timely training, both as an induction process and on an ongoing basis, 

and provided with access to external consultancy support, when required.

20.421.4 The Committee shall arrange for periodic reviews of its own performance and, 

at least annually, shall arrange for independent internal review of its constitution and 

these Terms of Reference to ensure it is operating at maximum effectiveness and 

recommend any changes it considers necessary to the Board for approval.

20.521.5 Subject to paragraph 21.6, these Terms of Reference may be amended only with 

approval of the Board.

20.621.6 Paragraphs 1.2.6,1.2.4, 1.4, 16.117.1 and this paragraph 20.621.6 of these 

Terms of Reference may be amended only with approval of the Board and the consent 

of LSEG.
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APPENDIX I

Rotation of Voting Rights Among User Members

There are a number of risk experts who attend the Risk Committee and who fulfil the criteria 

of Users. The voting memberships of the Risk Committee are rotated between such experts 

on a regular basis (at least once a year), so as to ensure compliance with the composition

requirements set out in Clause 1.1 of the Terms of Reference.

The following criteria are applied by the ChairmanChair, at theirsole discretion, when rotating 

the voting memberships of the Risk Committee:

1. Expertise in matters of risk;

2. Length of service on the Risk Committee;

3. Attendance at Risk Committee meetings; and

4. The ChairmanChair of the Risk Committee being satisfied that the membership of

Users on the Risk Committee is an appropriate representation of the clearing

membership as a whole.

Should the Company agree to allow an external party the right to nominate risk experts, the 

ChairmanChair of the Risk Committee shall decide the capacity in which the risk experts will 

attend Risk Committee (including whether they are clearing member Users or not) and will 

decide on voting membership on the basis set out above.
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 Limited. Registered in England No. 25932 Registered Office: 10 Paternoster Square, London, EC4M 7LS

APPENDIX III

Proposed changes to Terms of Reference of the LCH Audit Committee
CORPORATE

LCH LIMITED

(the Company)

TERMS OF REFERENCE OF THE AUDIT COMMITTEE

OF THE BOARD OF DIRECTORS

Adopted by the board of directors on [9 Septeember]12 July 

2022

1. PURPOSE

1.1 The Audit Committee (the Committee) shall be appointed by the Board of Directors of the

Company (the Board) and shall represent the interests of the Board in the sound financial

management and internal control management of the Company.

1.2 The Committee shall determine whether management has put in place adequate internal

control systems that provide reasonable assurance that corporate objectives will be

achieved and that the Company complies with applicable regulatory requirements, in force

from time to time.

1.3 The Committee shall assist the Board in fulfilling its responsibility relating to:

1.3.1 Review of the Company’s audited financial statements;

1.3.2 Review of the external auditor appointed by the Company (the External Auditor);

1.3.3 Review of the Company’s internal audit function;

1.3.4 Review of the Company’s regulatory compliance;

1.3.5 Review the Company’s compliance with its risk governance framework through review

of the Enterprise Risk report

1.3.6 Review of the Company’s internal control environment including through review of

Resilience Risk matters

1.4 The Committee shall keep itself informed of any changes in the laws and regulations

applicable to the audit policy of the Company and the matters for which the Committee is

responsible.

1.5 Nothing in these Terms of Reference shall diminish the responsibility of the Board to maintain

ongoing review of the Company's audit policy.

2. STRUCTURE AND MEMBERSHIP

2.1 Composition

2.1.1 The Committee shall comprise no fewer than four non-executive directors of the

Board, of which:

(a) no fewer than three shall be independent non-executive directors of the

Board, each of whom has been appointed in accordance with, and satisfies

the criteria for independence set out in, the terms of reference of the

Company's nomination committee (the Independent Directors) and one of

such Independent Directors shall be appointed chairmanchair of the

Committee (the Committee ChairmanChair);
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(b) one shall be a member of the Risk Committee of LCH Limited;

(c) one shall be a director associated with or connected to LCH Group Holdings

Limited shareholders other than exchanges, trading venues, multilateral

trading facilities, alternative trading systems or similar (User Director); and

(d) one shall be a director recommended or approved by London Stock 

Exchange Group plc (LSEG) (the LSEG Director) or the LSEG chief financial

officer, the LSEG chief risk officer or the LSEG head of audit, or any other

person of appropriate seniority and expertise as may be agreed from time

to time between LSEG and the ChairmanChair of the Board (the LSEG Audit

Representative)).

2.1.2 Members of the Committee shall ideally have significant, recent and relevant

financial experience, either by virtue of their experience in the senior executive or

non-executive management or regulation of another financial institution, or as an

auditor or finance director (or holding that responsibility) within a different

company. At least one Committee member should have a professional qualification

from one of the professional accountancy bodies.

2.2 Selection and Removal

2.2.1 Subject to paragraph 2.1.1(d), members of the Committee shall be selected and

appointed by the Board at any time in consultation with the Committee

ChairmanChair.

2.2.2 For the avoidance of doubt, the Committee ChairmanChair may also be appointed

as ChairmanChair to the audit committee of LCH SA.

2.2.3 Subject to paragraph 2.1.1(d), the Board may remove members of the Committee

with or without cause.

2.3 Committee ChairmanChair

2.3.1 The Board normally elects the Committee ChairmanChair. On an exceptional basis

and in the absence of the appointed Committee ChairmanChair, the Committee

shall elect a substitute Committee ChairmanChair from amongst its ranks by majority

vote.

2.3.2 The Committee ChairmanChair will keep the Committee's composition under review

and shall make proposalsto the Board accordingly.

2.4 Secretary

2.4.1 The secretary to the Committee (the Committee Secretary) shall be the Company

secretary Secretary or such other person as they may nominate.

2.4.2 The Committee shall have access to sufficient resources in order to carry out its

duties, including access to the Company secretariat for assistance as required and,

where deemed necessary or appropriate, to professional advisors.

2.5 Notice of Meetings

2.5.1 Notice of meetings shall be given by the Committee ChairmanChair, or the

Committee Secretary at the request of the Committee ChairmanChair.

2.5.2 Unless otherwise agreed, notice of each meeting confirming the venue, time and
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date, together with an agenda of items to be discussed, shall be forwarded to each

member of the Committee and any other person required or permitted to attend

prior to the date of the meeting in a timely manner. Supporting papers shall be sent

to Committee members, and to other attendees as appropriate, at the same time.

2.6 Frequency of meetings and location

The Committee shall meet as frequently as it determines necessary, but not less frequently

than three times per year and otherwise as required. Other than in exceptional

circumstances, all meetings shall be held in one of the registered offices of the Group

entities. The Committee ChairmanChair, or any other member of the Committee, may call

meetings of the Committee. The External Auditor may request a special meeting at any time.

2.7 Attendance

2.7.1 Only members of the Committee have the right to attend Committee meetings.

2.7.2 Members of the Company’s executive, the Head of Internal Audit of the Company

and representatives of the External Auditor may attend the meetings by invitation as

and when appropriate and necessary, in accordance with items on the agenda.

2.7.3 Members of the Committee may hold meetings in person, by telephone or by video

conferences.

2.8 Quorum

The quorum for meetings shall be (i) the Committee ChairmanChair, (ii) the User Director, (iii)

the LSEG Director or the LSEG Audit Representative and (iv) one other member of the

Committee. Two of the directors present shall be Independent Directors and one shall have

recent and relevant financial experience. A duly convened meeting of the Committee at

which a quorum is present shall be competent to exercise all or any of the authorities,

powers and discretions vested in or exercisable by the Committee.

2.9 Conduct of Meetings

Except as outlined above, meetings of the Committee shall be conducted in accordance with

the provisions of the Company's articles of association governing the proceedings of

directors.

2.10 Remuneration

The remuneration of Committee members shall be as determined by the Board. No member

of the Committee may receive any consulting, performance, advisory or other compensatory

fee from the Company other than fees paid in his or her capacity as a member of the Board

or as a member of a Committee of the Board.

3. AUTHORITY AND RESPONSIBILITIES

3.1 The Committee’s role is one of review. The authority and responsibilities set forth do not

reflect nor create any duty or obligation of the Committee to (i) plan or conduct any audit,

although the Committee is responsible for agreeing the programme of audits proposed by

the Internal Audit department and challenging the outcome of the audits, as appropriate, (ii)

determine or certify that the Company’s financial statements are complete, accurate, fairly

presented, or in accordance with generally accepted accounting principles or applicable law,

or (iii) guarantee the External Auditor’s report.

3.2 The Committee will hold joint sessions of meetings with the audit committee of L C H 
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SA from time to time as appropriate. All directors remain equally responsible for the

affairs of the Company of which they are a director, as a matter of law.

3.3 The Committee shall perform the following specific functions:

3.3.1 Review of the Company's Financial Statements

The Committee shall review, discuss with and challenge where necessary the

Company’s management and the External Auditor with regard to the Company's

audited financial statements and any other formal announcement relating to its

financial performance, before their approval by the Board, notably concerning:

(a) Compliance with accounting standards, policies, practices, legal

requirements as well as any changes;

(b) Major judgmental areas;

(c) Any significant adjustments arising from the audit;

(d) The "going-concern" assumption;

(e) The proposed statement on the directors’ review of the Company’s system

of internal control;

(f) Other material written communication between the External Auditor and

Company management.

3.3.2 Review of the External Auditor

(a) It will be the primary responsibility of the audit committee of LSEG for the selection, 

assessment of independence and review of the services and remuneration of the 

External Auditor, being the auditor of the wider LSEG group.

(b) The Committee will retain the following responsibilities:

(i) Review. The Committee shall have responsibility for the resolution of

disagreements between Company management and the External Auditor

regarding financial reporting. It shall ensure that the External Auditor

has the fullest co-operation of staff.

(ii) Access. The Committee has the right to have direct access to the

Company's External Auditor on a confidential basis at any time. It shall

meet the External Auditor without executives of the Company being 

present at least once a year.

(iii) Reports. The Committee shall review with the External Auditor:

(A) the final audit;

(B) any matters the External Auditor may wish to discuss;

(C) any representation letters required by the External Auditor

before they are signed by management;

(D) the management letter and the responses from management;

and
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(E) compliance with any codes of conduct of corporate governance

applicable from time to time or which the Board otherwise

determines should be complied with to achieve best practice

corporate governance standards.

3.3.3 Review of the Company’s Internal Audit Function

The Committee shall regularly review the functioning of the Internal Audit

department, notably concerning:

(a) Internal Audit Charter. The Committee shall review from time to time, and no

less frequently than once every three yearsannually, the Internal Audit Charter of

the Company.

(b) Audit Planning. The Committee shall review and confirm the annual audit plan

prepared by the Internal Audit department after approval by the CEO of the

Company and ahead of annual submission to the Company’s regulator. In doing

so, the Committee shall determine whether the audit programme provides

appropriate coverage and may request any special tasks or projects

to be included in the plan. The Committee shall also ensure that the plan is

effectively coordinated with the External Auditor.

(c) Quality and Effectiveness. The Committee shall monitor the quality and

effectiveness of the Internal Audit department. An external review of Internal

Audit will be conducted at least every five years. The Committee ChairmanChair

shall provide an annual appraisal of the Head of Internal Audit.

(d) Reporting line. The ChairmanChair of the Company shall, with the assistance of

the advice and recommendations of the Committee, approve the appointment

or termination of employment of the Head of Internal Audit of the Company and

keep under review the reporting line to ensure independent operation of the

department. In the event of an unresolved dispute between the executive and

Internal Audit, or in respect of any matter the Head of Internal Audit deems as

being necessary, he or she has the absolute right to report directly to the

Committee ChairmanChair or any Committee member.

(e) Resources. The Committee shall monitor the adequacy of resources within the 

Internal Audit department.

(f) Reporting. The Head of Internal Audit shall report directly to the Committee

ChairmanChair (as well as, where appropriate, the ChairmanChair of the Board).

The Committee shall agree and receive regular reporting from the Internal Audit

department including coverage of completed audit assignments, follow up of

issues and planned progress. It shall meet the Head of Internal Audit of the

Company regularly, and at least once a year without executives of the Company

being present.

3.3.4 Review of the Company's regulatory compliance

The Committee shall:

(a) review the adequacy and security of the Company's arrangements for its

employees and contractors to raise concerns, in confidence, about possible

wrongdoing in financial reporting or other matters. The Committee shall ensure

that these arrangements allow proportionate and independent investigation of 

such matters and appropriate follow-up actions;
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(b) review the Company's procedures for detecting and preventing financial crime

including fraud, bribery and money-laundering;

(c) discuss with management and the External Auditor any correspondence with

regulators, which raise material issues regarding the Company’s financial 

statements, accounting policies and/or internal control system;

(d) monitor the Company’s procedures for ensuring compliance with regulatory

reporting requirements and its relationship with the relevant regulatory

authorities;

(e)

(f)(d) review the performance of the Company's Chief Compliance Officer and make

recommendations with respect to such performance to the Board; and

(g)(e) discuss legal matters that may have a material impact on the financial statements

or on the Company’s compliance policies.

3.3.5 Review of the Company’s Risk Management Framework

(a) Review the process for the annual validations of the Company’s risk

management models;

(b) Review breaches of the Company’s Risk Governance Framework approved by

the Board; and

(c) Commission and review audit reports relating to the risk management of the

Company.

3.3.6 Review of the Company’s Internal Control Environment

(a) Internal Control. The Committee shall:

(i) keep under review the Company’s framework of internal controls and 

make recommendations for change to the Board;

(ii) consider internal reports on the operation of controls and the proposals

for implementation of change and strengthening;

(iii) receive annually reports as required by law or regulation from time to

time; and

(iv)(iii)

(v) review at least once a year the provisions for business continuity and

disaster recovery and the assessment of the effectiveness of the

arrangements in place;

(vi) review at least once a year the measures taken to control outsourced 

activities and any risks the Company may incur; and

(vii)(iv) determine whether the risk internal control and compliance resources

are adequate and whether such controls and monitoring have

appropriate standing within the Company.

(b) Issues. The Committee shall consider any major findings, and management

response(s) arising from internal audits, external audits, management reporting

and internal investigations, and any other reviews carried out (including

recommendations from regulatory authorities) and take appropriate actions,

which include escalating issues to the Board where appropriate.
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3.3.7 Coordination with Risk Committee

Internal audits, external audits, investigations and reviews carried out under the auspices

of (and contained in the relevant reporting to) the Committee will include control areas

responsible for executing the policies and methodologies set by the Company’s Risk

Committee.

3.3.8 Board Direction.

The Committee shall consider any other matters as directed by the Board.

4. PROVISIONS FOR ACCESS

4.1 Access to Management

The Committee shall have full and unrestricted access to the Company’s management and

employees, and to the Company’s Internal and External Auditor. All employees are directed

to co-operate with any requests made by the Committee.

4.2 Access to Outside Advisers

The Committee is authorised by the Board, at its discretion, to obtain independent

professional advice and to secure the assistance of outsiders with relevant expertise. This

shall apply both to the Committee as a whole and to individual Committee members. Costs

relating to the provision of advice shall be borne by the Company.

4.3 Access to Company Information

The Committee shall have full and unrestricted access to (i) any systems or facilities of the

Company and of the LCH group Group Holdings Limited and its subsidiaries (together “the

Group”) and (ii) any books, records or other data it requires from the Company and from

the Group in order to carry out its functions.

5. REPORTING

5.1 Minutes / Agenda. The Committee Secretary shall minute the proceedings and resolutions of

all meetings of the Committee, including recording the names of those present and in

attendance, and such minutes shall be presented to the Committee for approval at the next 

following meeting. 

Board Reporting

5.2 The Committee ChairmanChair shall report the Committee's discussions, decisions and

recommendations to the Board, which shall decide on an appropriate policy response.

5.3 The Committee shall have no executive powers with respect to those findings and

recommendations.

5.4 The Committee shall ensure that the Board is regularly informed of the adequacy of key

control systems in the financial, operational and compliance-related areas.

Annual Reports

5.5 The Committee ChairmanChair, or his or her designee, will make available to the Chief

Compliance Officer of the Company such information relating to the Committee’s work as is

necessary for the Chief Compliance Officer of the Company to draft and submit the annual

compliance reports required by the CFTC Rules and other applicable regulations in force
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from time to time.

5.6 Where requested by the Board, the Committee should provide advice on whether the annual

report and accounts, taken as a whole, is fair, balanced and understandable and provides

the information necessary for shareholders to assess the Company's performance, business

model and strategy.

Provision of information to LSEG

5.7 The ChairmanChair of the Committee shall liaise regularly with the chairmanchair of the audit

committee of LSEG with a view to assisting LSEG in fulfilling its own audit requirements,

including with respect to the information set out at paragraph 3.3.1 above.

5.8 The Committee shall have regard for LSEG's status as a listed issuer required to comply with

the UK Corporate Governance Code.

6. EDUCATION, TRAINING AND COMPETENCE

6.1 An induction programme shall be provided for new Committee members. This shall cover

the role of the Committee, including its terms of reference and expected time commitment

by members and an overview of the Company's business, identifying the main business and

financial dynamics and risks.

6.2 The Committee shall be provided with appropriate and timely training, both as an induction

process and on an ongoing basis, and provided with access to external consultancy support,

when required.

6.3 Induction and training may be provided on a joint basis with the audit committee of LCH SA.

7. CONFIDENTIALITY AND CONFLICTS OF INTEREST

7.1 Without prejudice to any rights of LSEG or its representatives under these Terms of Reference,

all confidential matters considered by the Committee and any confidential information

disclosed to members of the Committee in connection with their position as a member of

the Committee must remain confidential, notwithstanding the company to which that

information relates, nor whether the member is a director of that company or not, save as

required to be disclosed by law or regulation. Any other persons involved in the Committee’s

work shall either be bound by undertakings of professional secrecy or by ad hoc

confidentiality agreements with the Committee.

7.2 Conflicts of interest relating to Committee members shall be governed by the relevant

articles in the articles of association of the Company from time to time.

7.3 Any disagreement within the Board, including disagreement between the Committee’s

members and the rest of the Board, should be resolved at Board level. Where disagreements

between the Committee and the Board cannot be resolved, the Committee will report the

issue to the Board of LCH Group Holdings Limited.

8. AMENDMENT

8.1 Subject to paragraph 8.2, these Terms of Reference may only be amended with the approval 

of the Board.

8.2 Paragraphs 2.1(d), 2.8, 3.3.2(a), 5.7, 5.8, 7.1 and this paragraph 8.2 of these Terms of Reference 

may be amended only with approval of the Board and the consent of LSEG.