U.S. COMMODITY FUTURES TRADING COMMISSION 

Three Lafayette Centre 

Division of Clearing and Risk 

ELECTRONIC MAIL 

Ian Axe 

Chief Executive Officer 

LCH.Clearnet Limited 

Aldgate House 

33 Aldgate High Street 

London EC3N lEA 

United Kingdom 

1155 21st Street, NW, Washington, DC 20581 

Telephone: (202) 418-5430 

Facsimile: (202) 418-5547 

aradhakrishnan@cftc.gov 

March 28, 2013 

Re: Extension for Compliance with Commission Regulation 39.12(b)(7) 

Dear Mr. Axe: 

Ananda Radhakrishnan 

Director 

By correspondence dated March 13 and March 25, 2013, LCH.Clearnet Limited 

("LCH"), a registered derivatives clearing organization ("DCO"), requested that the Division of 

Clearing and Risk ("Division") grant an extension to May 17, 2013 for compliance with 

Commodity Futures Trading Commission ("Commission") Regulation 39.12(b)(7), 1 regarding 

the requirement that DCOs establish systems that allow for the acceptance or rejection of trades 

as quickly as would be technologically practicable if fully automated systems were used. 2 This is 

the second time that LCH has requested an extension for compliance with Commission 

Regulation 39.12(b)(7) and the Division has already granted LCH a six-month extension for 

compliance until March 31, 2013.3 

LCH has represented that it will use the second extension period to complete the testing, 

migration and implementation of the technology systems necessary to comply with Commission 

Regulation 39.12(b)(7) ("STP Solution"), and to prepare and submit related rule amendments to 

the Commission pursuant to Commission Regulation 40.6.4 According to the timetable included 

I 17 C.F.R. § 39.12(b)(7). 

2 As you are aware, LCH's current practice of batching trades for acceptance or rejection at 15-minute intervals does 

not meet the standard of Commission Regulation 39.12(b)(7). In this regard, the Commission has explained that 

"Rather than prescribe a specific length of time, the Commission is implementing a standard that action be taken ' as 

quickly as would be technologically practicable if fully automated systems were used.' This standard would require 

action in a matter of milliseconds or seconds or, at most, a few minutes, not hours or days." 77 Fed. Reg. 21,278, 

21,285 (Apr. 9, 2012). 

3 See Letter from Ananda Radhakrishnan, Director, Division of Clearing and Risk, to Daniel Maguire, Head of 

SwapClear US and Managing Director, LCH.Cleamet Limited (November 21, 2012). 

4 17 C.F.R. § 40.6. 
Ian Axe 

March 28, 2013 

Page 2 

in the request, LCH represents that it will comply with Commission Regulation 39.12(b)(7) by 

Friday May 17, 2013 and it will commence clearing trades using its STP Solution on Monday 

May 20, 2013. 

The Division reminds LCH of its responsibility to comply with each ofthe Core 

Principles set forth in section 5b( c )(2) of the Commodity Exchange Act ("Act")5 and the 

Commission's regulations, in order to maintain its registration as a DCO pursuant to section 

5b(c)(2)(A)(i) ofthe Act 6 and Commission Regulation 39.10(a).7 In this regard, LCH's delayed 

compliance with Commission Regulation 39.12(b)(7) additionally raises concerns as to LCH's 

broader compliance with Core Principle B, which requires that a DCO have adequate operational 

and managerial resources. 8 

The Division further reminds LCH that the annual report of LCH' s chief compliance 

officer, for which LCH has received an extension for submission until no later than 

April30, 2013, must: 

• Provide an assessment as to the effectiveness of LCH' s compliance policies and 

procedures with respect to each Core Principle and applicable Commission 

regulation; 

• Discuss areas for improvement and recommend potential or prospective changes 

or improvements to the LCH's compliance program and resources allocated to 

compliance; 

• Describe the financial, managerial, and operational resources set aside for 

compliance with the Act and Commission regulations; and 

• Describe any material compliance matters, including incidents of noncompliance, 

and describe the corresponding action taken by LCH. 9 

The Division has carefully reviewed LCH's request and has met with senior management 

of LCH on two separate occasions to discuss the request. Based on the representations contained 

in LCH' s request and the representations made by senior management of LCH to the Division in 

support of the request, the Division herein grants the requested extension to LCH, thereby 

requiring full compliance with Commission Regulation 3 9 .12(b )(7) no later than May 17, 2013, 

unless LCH is notified otherwise. This extension is granted on the condition that (i) LCH senior 

management and senior technology officers provide weekly updates to Division staff regarding 

LCH' s progress in testing, migration and implementation of its STP Solution; (ii) LCH submit 

all rule amendments related to the implementation of its STP Solution to the Commission 

pursuant to Commission Regulation 40.6 no later than April15, 2013; (iii) LCH submit all rule 

amendments related to the "strategic implementation" of LCH' s new initial margin methodology 

no later than April15, 2013; and (iv) the rules described in (ii) and (iii) above comply with the 

Act and Commission regulations thereunder. 

5 7 U.S.C. § 7a-l(c)(2). 

6 7 U.S.C. § 7a-l(c)(2)(A)(i). 

7 17 C.F.R. § 39.10(a). 

8 7 U.S.C. § 7a-l(c)(2)(B)(i). 

9 17 C.F.R. § 39.10(c)(3)(ii)-(v). 
Ian Axe 

March 28, 2013 

Page 3 

This extension is granted by the Division in reliance on the representations contained in 

LCH's request and the representations made by senior management of LCH. Any different, 

changed, or omitted material facts or circumstances, or LCH's failure to comply with any of the 

conditions stated herein, may require termination of the extension. The Division retains the 

authority to condition further, modify, suspend, or otherwise restrict the extension granted 

herein. 

Director