RESTRICTED (EXTERNAL)

VIA CFTC Portal 

16 November 2022

Mr Christopher Kirkpatrick

Commodity Futures Trading Commission

1155 21st Street NW

Three Lafayette Centre

Washington DC 20581

USA

Dear Mr Kirkpatrick,

Pursuant to CFTC regulation 39.5(b), LCH SA (“LCH SA”), a derivatives clearing organization registered 

(“DCO”) with the Commodity Futures Trading Commission (the “CFTC”), is making the present 

submission for determination of whether mandatory clearing should apply.

iTraxx Asia ex-Japan and CDX EM Indices initiative 

Subject to ongoing regulatory review and approval process, LCH SA intends to expand its clearing 

services in respect of the clearing of Markit iTraxx® Asia ex-Japan (“iTraxx Asia ex-Japan”) and Markit 

CDX Emerging Markets (“CDX EM”) indices with the associated single name constituents

Eligibility to clear swaps and ability to maintain compliance under a mandatory clearing determination 

LCH SA CDSClear is expecting to launch the clearing offer for Markit iTraxx® Asia Ex-Japan and CDX EM

indices, as an extension to its current product offering in Q4 2022 subject to any relevant regulatory 

review or approval process duly completed.

Under CFTC regulation, LCH SA is eligible to clear these swaps and will be able to maintain compliance 

with section 5b(c)2 of the Act

Factors for determination

The existence of significant outstanding notional exposures, trading liquidity, and adequate pricing 

data.

Year-to-date (to 9 Sep2022), Ice Clear Credit has cleared USD 77bn1 of iTraxx Asia ex-Japan, with open 

interest of USD 17.2bn and USD 216bn of CDX EM, with open interest of USD 28.8bn.

1

ICE Report Center - Data (theice.com)
2

RESTRICTED (EXTERNAL)

Pricing data is available from IHS Markit and other standard price sources. However, to ensure that LCH

SA always has access to the best prices, even on illiquid products, we have implemented a process 

whereby members of the CDSClear service (with open interest in a product) contribute prices on a daily 

basis. These prices are aggregated to create our settlement prices.

The availability of rule framework, capacity, operational expertise and credit support infrastructure to 

clear the contract on terms that are consistent with the material terms and trading conventions on 

which the contract is then traded.

LCH SA already has a well-developed rule framework and support infrastructure for clearing CDS indices. 

LCH SA intends to leverage this existing operational capability when extending its offering to cover iTraxx 

Asia ex-Japan and CDX EM indices.

For example, in 2021 LCH CDSClear cleared circa EUR 2 trillion in CDS index trades. 

In order to prepare for the launch of iTraxx Asia ex-Japan and CDX EM indices, LCH SA has performed 

testing to ensure that it is able to clear iTraxx Asia ex-Japan and CDX EM indices in a manner that is 

consistent with the terms on which iTraxx Asia ex-Japan and CDX EM indices contracts are traded. 

As for the other CDS indices currently cleared through LCH SA, the clearing documentation applicable to 

the CDS cleared contract is based on the market standard documentation.

The effect on the mitigation of systemic risk, taking into account the size of the market for such 

contract and the resources of the derivatives clearing organization available to clear the contract

For any newly cleared product, the CCP’s default management protocols, processes and technology are 

modified to allow clearing of the new product.

The CCP’s risk management framework has been calibrated to handle an expected volume of activity.

The effect on competition, including appropriate fees and charges applied to clearing

iTraxx Asia ex-Japan and CDX EM indices are currently cleared by Ice Clear Credit only. The extension of 

the CDS Clearing service offered by LCH SA should allow more competition on this market and could 

down the line lead the European authorities to submit the iTraxx Asia ex-Japan and CDX EM indices to 

mandatory clearing.

The fees applicable to the clearing of iTraxx Asia ex-Japan and CDX EM indices will be the same as the 

fees applicable to other indices cleared on the platform as denominated in USD2. The current fees for 

USD denominated products have been certified with the CFTC3.

The existence of reasonable legal certainty in the event of insolvency of the relevant derivatives 

clearing organization or one or more of its clearing members with regard to the treatment of customer 

and swap counterparty positions, funds and property

2 https://www.lch.com/services/cdsclear/fees

3 LCHSA_CDSClear_Fees 2022_CFTC SelfCert_Amended_17 Dec. 2021.pdf
3

RESTRICTED (EXTERNAL)

The level of legal certainty around the clearing of iTraxx Asia ex-Japan and CDX EM indices is the same 

as that of any other CDS currently cleared by LCH SA.

Insofar as legal certainty in the event of the insolvency of the DCO is concerned, LCH SA would be wound 

up under French law and has provided opinions on the treatment of cleared swaps customer funds as 

part of its DCO registration in 2013.

Product specifications, including copies of any standardized legal documentation, generally accepted 

contract terms, standard practices for managing any life cycle events associated with the swap, and 

the extent to which the swap is electronically confirmable.

The clearing documentation applicable to iTraxx Asia ex-Japan indices is based on the market standard 

iTraxx AsiaPac Untranched Transactions Standard Terms Supplement published by Markit4. The clearing 

documentation applicable to CDX EM indices is based on the market standard CDX Emerging Markets 

Untranched Transactions Standard Terms Supplement published by Markit5. This covers the 

standardized legal documentation and generally accepted contract terms.

Standard practices for managing any life cycle events are based on the credit events as defined under 

the 2014 ISDA Credit Derivatives Definitions6 as applicable, and as determined by the ISDA EMEA 

Determination Committee7.

Only standardized CDS are eligible to clearing and as a result, they are all electronically confirmable.

Participant eligibility standards, if different from the derivatives clearing organization’s general 

participant eligibility standards

The participant eligibility standards have not been modified.

Pricing sources, models, and procedures, demonstrating an ability to obtain sufficient price data to 

measure credit exposures in a timely and accurate manner, including any agreements with clearing 

members to provide price data and copies of executed agreements with third party price vendors, and

information about any price reference index used, such as the name of the index, the source that 

calculates it, the methodology used to calculate the price reference index and when and where it is 

published publicly

LCH SA will continue using a price contribution process as described under Section 5.18 of the CDS 

Clearing Procedures8. All members are required to contribute on contracts on which they have open 

interest.

4 https://www.markit.com/Documentation/Product/ITraxx

5 https://www.markit.com/Documentation/Product/CDX

6 https://www.isda.org/2014/06/30/2014-isda-credit-derivatives-definitions/

7 https://www.cdsdeterminationscommittees.org/

8

https://www.lch.com/system/files/media_root/CDSClear_Section_5_of_the_Procedures_18.05.2022.pdf
4

RESTRICTED (EXTERNAL)

Risk management procedures including measurement and monitoring of credit exposures, initial and 

variation margin methodology, methodologies for stress testing and back testing, settlement 

procedures, and default management procedures

The margin framework for sovereigns and state-owned enterprises, in particular updates for potential 

joint defaults in the short charge and the addition of relevant hedging indices in the liquidity charge, has 

been added to the revised version of the LCH SA Reference Guide: CDS Margin Framework (V3.14)9. Risk 

management procedures have been updated to consider an additional market data snap to be validated 

on a daily basis for Asian products.

Applicable rules, manuals, policies or procedures

The CDS Clearing Supplement has been updated to make reference to the CDX Emerging Markets

Untranched Transactions Standard Terms Supplement published by Markit. It also adds certain 

provisions related to sovereign CDS.

10

CDSClear Service Guide has been updated to include Hong Kong as a Trading City for end of day price 

contributions and cross trades.

A description of the manner in which the derivatives clearing organization has provided notice of the 

submission to its members and a summary of any views on the submission expressed by the members

The proposed CDS clearing documentation provided to legal working group of CDSClear members and 

submitted to consultation is attached to the self-certification available on LCH’s website.

11

Clearing members have been informed via the notice attached in Appendix with the following feedback.

One clearing member welcomes the clearing of these indexes by LCH SA but does not believe that 

clearing should be mandated for the new indexes unless and until the usual review process is carried out 

as to whether a product is suitable for a clearing mandate.

Yours sincerely,

Frank Soussan

Global Head of CDSClear

LCH SA

9https://www.lch.com/sites/default/files/media/files/LCHSACDSClear_iTraxxAsia_CDXEM_Sov_SelfCert

%2BAppendix_Formal_12Sep2022.pdf

10https://www.lch.com/sites/default/files/media/files/LCHSACDSClear_iTraxxAsia_CDXEM_Sov_SelfCer

t%2BAppendix_Formal_12Sep2022.pdf

11https://www.lch.com/sites/default/files/media/files/LCHSACDSClear_iTraxxAsia_CDXEM_Sov_SelfCer

t%2BAppendix_Formal_12Sep2022.pdf
5

RESTRICTED (EXTERNAL)

APPENDIX

Notice of the submission to CDSClear members

LCHSA_CDSClear_iT

raxxAsiaexJapan_CDXEM_CFTC 39 5(b)_Member_Consulation_Memo_Draft.docx
Memo

To Clearing Members

From LCH SA – CDSClear service

Date []

Subject CFTC Clearing Mandate Determination for iTraxx Asia ex-Japan and CDX EM Index CDS

Introduction

Pursuant to CFTC regulation 39.5(b), LCH SA (“LCH SA”), a derivatives clearing organization registered 

(“DCO”) with the Commodity Futures Trading Commission (the “CFTC”), is making the present clearing 

member consultation for determination of whether mandatory clearing should apply.

iTraxx Asia ex-Japan and CDX EM Index initiative 

Subject to ongoing regulatory review and approval process, LCH SA CDSClear intends to expand its clearing 

services in respect of the clearing of Markit iTraxx® Asia ex-Japan (“iTraxx Asia ex-Japan”) and Markit CDX 

Emerging Market (“CDX EM”) indices with the associated single name constituents.

Factors for determination

The existence of significant outstanding notional exposures, trading liquidity, and adequate pricing data.

Year-to-date (to 9 Sep2022), Ice Clear Credit has cleared USD 77bn1 of iTraxx Asia ex-Japan, with open 

interest of USD 17.2bn and USD 216bn of CDX EM, with open interest of USD 28.8bn

Pricing data is available from IHS Markit and other standard price sources. However, to ensure that LCH SA

always has access to the best prices, even on illiquid products, we have implemented a process whereby 

members of the CDSClear service (with open interest in a product) contribute prices on a daily basis. These 

prices are aggregated to create our settlement prices.

The availability of rule framework, capacity, operational expertise and credit support infrastructure to 

clear the contract on terms that are consistent with the material terms and trading conventions on which 

the contract is then traded

LCH SA already has a well-developed rule framework and support infrastructure for clearing CDS indices. 

LCH SA intends to leverage this existing operational capability when extending its offering to cover iTraxx 

Asia ex-Japan and CDX EM indices.

1

ICE Report Center - Data (theice.com)
For example, in 2021 LCH CDSClear cleared circa EUR 2 trillion in CDS index trades.

In order to prepare for the launch of iTraxx Asia ex-Japan and CDX EM indices, LCH SA has performed testing 

to ensure that it is able to clear iTraxx Asia ex-Japan and CDX EM indices in a manner that is consistent with 

the terms on which iTraxx Asia ex-Japan and CDX EM indices contracts are traded. 

As for the other CDS indices currently cleared through LCH SA, the clearing documentation applicable to the 

CDS cleared contract is based on the market standard documentation.

The effect on the mitigation of systemic risk, taking into account the size of the market for such contract 

and the resources of the derivatives clearing organization available to clear the contract

For any newly cleared product, The CCP’s default management protocols, processes and technology are 

modified to allow clearing of the new product.

The CCP’s risk management framework has been calibrated to handle an expected volume of activity.

The effect on competition, including appropriate fees and charges applied to clearing

iTraxx Asia ex-Japan and CDX EM indices are already cleared by Ice Clear Credit only currently. The extension 

of the CDS Clearing service offered by LCH SA should allow more competition on this market and could down 

the line lead the European authorities to submit the iTraxx Asia ex-Japan and CDX EM indices to mandatory 

clearing

The fees applicable to the clearing of iTraxx Asia ex-Japan and CDX EM indices will be the same as the fees 

applicable to other indices cleared on the platform as denominated in USD2. The current fees for USD

denominated products have been certified with the CFTC3.

The existence of reasonable legal certainty in the event of insolvency of the relevant derivatives clearing 

organization or one or more of its clearing members with regard to the treatment of customer and swap 

counterparty positions, funds and property

The level of legal certainty around the clearing of iTraxx Asia ex-Japan and CDX EM indices is the same as 

that of any other CDS currently cleared by LCH SA.

Insofar as legal certainty in the event of the insolvency of the DCO is concerned, LCH SA would be wound 

up under French law and has provided opinions on the treatment of cleared swaps customer funds as part 

of its DCO registration in 2013.

Product specifications, including copies of any standardized legal documentation, generally accepted 

contract terms, standard practices for managing any life cycle events associated with the swap, and the 

extent to which the swap is electronically confirmable.

2 https://www.lch.com/services/cdsclear/fees

3 LCHSA_CDSClear_Fees 2022_CFTC SelfCert_Amended_17 Dec. 2021.pdf
The clearing documentation applicable to iTraxx Asia ex-Japan indices is based on the market standard 

iTraxx AsiaPac Untranched Transactions Standard Terms Supplement published by Markit4. The clearing 

documentation applicable to CDX EM indices is based on the market standard CDX Emerging Markets 

Untranched Transactions Standard Terms Supplement published by Markit5.This covers the standardized 

legal documentation and generally accepted contract terms.

Standard practices for managing any life cycle events are based on the credit events as defined under the 

2014 ISDA Credit Derivatives Definitions6 as applicable, and as determined by the ISDA EMEA Determination 

Committee7.

Only standardized CDS are eligible to clearing and as a result, they are all electronically confirmable.

Participant eligibility standards, if different from the derivatives clearing organization’s general 

participant eligibility standards

The participant eligibility standards have not been modified.

Pricing sources, models, and procedures, demonstrating an ability to obtain sufficient price data to 

measure credit exposures in a timely and accurate manner, including any agreements with clearing 

members to provide price data and copies of executed agreements with third party price vendors, and 

information about any price reference index used, such as the name of the index, the source that 

calculates it, the methodology used to calculate the price reference index and when and where it is 

published publicly

LCH SA will continue using a price contribution process as described under Section 5.18 of the CDS Clearing 

Procedures8. All members are required to contribute on contracts on which they have open interest.

Risk management procedures including measurement and monitoring of credit exposures, initial and 

variation margin methodology, methodologies for stress testing and back testing, settlement procedures, 

and default management procedures

The margin framework for sovereigns and state-owned enterprises, in particular updates for potential joint 

defaults in the short charge and the addition of relevant hedging indices in the liquidity charge, has been 

added to the revised version of the LCH SA Reference Guide: CDS Margin Framework (V3.14) Risk 

management procedures have been updated to consider an additional market data snap to be validated on 

a daily basis for Asian products.

Applicable rules, manuals, policies or procedures

4 https://www.markit.com/Documentation/Product/ITraxx

5 https://www.markit.com/Documentation/Product/CDX

6 https://www.isda.org/2014/06/30/2014-isda-credit-derivatives-definitions/

7 https://www.cdsdeterminationscommittees.org/

8 https://www.lch.com/system/files/media_root/CDSClear_Section_5_of_the_Procedures_18.05.2022.pdf
The CDS Clearing Supplement9 has been updated to make reference to the CDX Emerging Markets

Untranched Transactions Standard Terms Supplement published by Markit. It also adds certain provisions 

related to sovereign CDS10. 

CDSClear Service Guide11 has been updated to include Hong Kong as a Trading City for end of day price 

contributions and cross trades.

9 To be published at least 2 days before go-live at https://www.lch.com/resources/rulebooks/lch-sa.

10

https://www.lch.com/sites/default/files/media/files/LCHSACDSClear_iTraxxAsia_CDXEM_Sov_SelfCert%2

BAppendix_Formal_12Sep2022.pdf

11 https://clearingservices.lchclearnet.com/web/portal/cdsclear/documents/CDSClear-

%20Service%20Description%20May%202022%20-%20V17.0.pdf