UNITED STATES OF AMERICA 

Before the 

COMMODITY FUTURES TRADING COMMISSION 

Treatment of Funds Held in Connection with 

Clearing by LCH SA of Single-Name Credit Default 

Swaps, Including Spun-Out Component Transactions 

ORDER 

Banque Centrale de Compensation, doing business as LCH SA (“LCH SA”), a 

derivatives clearing organization (“DCO”) registered under Section 5b of the Commodity 

Exchange Act (“Act”) and a securities clearing agency registered under Section 17A of the 

Securities Exchange Act of 1934 (“Exchange Act”), has submitted a request that the Commodity 

Futures Trading Commission (“Commission”) issue an Order permitting LCH SA and its 

clearing members that are futures commission merchants registered under Section 4f(a)(1) of the 

Act and are also registered broker-dealers registered under Section 15(b) of the Exchange Act 

(“FCM/BD Clearing Members”) to (i) hold in a cleared swaps account subject to Section 4d(f) of 

the Act customer money, securities, and property (collectively, “customer property”) used to 

margin, guarantee, or secure both cleared swaps and cleared security-based swaps; and (ii) 

provide for portfolio margining of such cleared swaps and cleared security-based swaps. 

The Commission has reviewed the request and the record in this matter (“Submission”), 

and finds that LCH SA has demonstrated that it can continue to comply with the requirements 

under the Act and the Commission's regulations thereunder. Therefore, 
IT IS ORDERED, pursuant to Section 4d(f) of the Act, 7 U.S.C. § 6d(f), that, subject to 

the terms and conditions below, LCH SA and its FCM/BD Clearing Members that are acting 

pursuant to this Order may hold customer property used to margin, guarantee, or secure trades or 

positions in cleared security-based swaps with other customer property used to margin, 

guarantee, or secure trades or positions in cleared swaps in a cleared swaps account or accounts 

maintained in accordance with Section 4d(f) of the Act (including any orders issued pursuant to 

Section 4d(f) of the Act) and the regulations thereunder, and provide for portfolio margining of 

such cleared security-based swaps and swaps, subject to the requirements of Commission 

Regulation 39.13(g)(4). All such customer property shall be accounted for and treated and dealt 

with as belonging to the cleared swaps customers of the participating FCM/BD Clearing 

Members, consistent with Section 4d(f) of the Act and the regulations thereunder. 

IT IS FURTHER ORDERED, that: 

(1) Customer property used to margin, guarantee, or secure positions in credit default 

swaps (“CDS”) that are narrow-based index CDS or single-name CDS, (together, “SecurityBased CDS”) that are currently, or will in the future be, cleared through LCH SA, may be 

commingled and portfolio margined with broad-based index CDS that are currently, or will in 

the future be, cleared through LCH SA, in accounts subject to Section 4d(f) of the Act. 

(2) Each FCM/BD Clearing Member acting pursuant to this Order shall take 

appropriate measures to identify, measure, and monitor financial risk associated with carrying 

the Security-Based CDS in a cleared swaps account and implement risk management procedures 

to address those financial risks. 

(3) LCH SA and each FCM/BD Clearing Member acting pursuant to this Order shall 

provide notice to its customers that customer property used to margin, guarantee, or secure 

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Security-Based CDS will not receive customer protection treatment under the Exchange Act or 

Securities Investor Protection Act of 1970, and will instead receive customer protection 

treatment under Subchapter IV of Chapter 7 of Title 11 of the United States Code and the rules 

and regulations thereunder. 

(4) LCH SA shall apply appropriate risk management oversight procedures with 

respect to positions in the Security-Based CDS. LCH SA shall conduct oversight sufficient to 

assure that each FCM/BD Clearing Member acting pursuant to this Order has the operational 

capabilities necessary to manage defaults in such positions. 

(5) LCH SA shall require FCM/BD Clearing Members to collect customer initial 

margin, as defined in Commission Regulation 1.3, from their customers at a minimum level 

determined by LCH SA. 

(6) LCH SA shall conduct financial surveillance and oversight with respect to the 

Security-Based CDS carried by each FCM/BD Clearing Member acting pursuant to this Order. 

(7) LCH SA and each FCM/BD Clearing Member acting pursuant to this Order shall 

take all other steps appropriate to manage risk related to clearing the Security-Based CDS. 

(8) LCH SA and each FCM/BD Clearing Member acting pursuant to this Order shall 

hold all customer property deposited with LCH SA and such FCM/BD Clearing Member, 

respectively, to margin, guarantee, or secure Security-Based CDS in accordance with the 

requirements of section 4d(f) of the Act and the Commission’s regulations thereunder. 

(9) LCH SA shall at all times fulfill all representations made in the Submission. 

This Order is issued pursuant to Section 4d(f) of the Act based upon the representations 

made and supporting material provided to the Commission by LCH SA in its Submission. Any 

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material changes or omissions in the facts and circumstances pursuant to which this Order is 

granted may require the Commission to reconsider its finding that the relief set forth herein is 

appropriate. Further, in its discretion, the Commission may condition, modify, suspend, 

terminate, or otherwise restrict the exemptive relief granted in this Order, as appropriate, on its 

own motion. 

Issued in Washington, D.C., this 1st day of November, 2021. 

By the Commission 

Christopher J. Kirkpatrick 

Secretary of the Commission 

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