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VIA ELECTRONIC EMAIL

29 August 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 Australia Index initiative 

Subject to ongoing regulatory review and approval process1, LCH SA intends to expand its clearing 

services in respect of the clearing of Markit iTraxx® Australia indices with the associated single name 

constituents (“iTraxx Australia”).

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® Australia indices, as an 

extension to its current product offering late August 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.

1 https://www.lch.com/system/files/media_root/LCH SA_CDSClear_CFTC Rule certification_Public_1 July 2022.pdf
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Year-to-date (to 14 June 2022), USD 23bn2 of iTraxx Australia has been cleared by Ice Clear Credit, with 

open interest of USD 6.5bn.

In DTCCs Trade Information Warehouse, there is USD 3.6bn in bilateral trades between current LCH SA 

CDSClear Members and/or Clients.

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 

Australia 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 Australia indices, LCH SA has performed testing to ensure 

that it is able to clear iTraxx Australia indices in a manner that is consistent with the terms on which 

iTraxx Australia 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 Australia 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 Australia indices to mandatory clearing.

2

ICE Report Center - Data (theice.com)
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The fees applicable to the clearing of iTraxx Australia indices will be the same as the fees applicable to 

other indices cleared on the platform as denominated in USD3. The current fees for USD denominated 

products have been certified with the CFTC4.

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 Australia 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 Australia indices is based on the market standard iTraxx 

AsiaPac 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

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

4 LCHSA_CDSClear_Fees 2022_CFTC SelfCert_Amended_17 Dec. 2021.pdf

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

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

7 https://www.cdsdeterminationscommittees.org/
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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 wrong way risk calculation has been adjusted, as reflected in the revised version of the LCH SA Reference 

Guide: CDS Margin Framework (V3.13)9to make shocks applied to indices containing financials more generic, 

derived automatically from the shocks applied on index constituents.

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

daily basis for Australasian products.

Applicable rules, manuals, policies or procedures

The CDS Clearing Supplement10 has been updated to make reference to the iTraxx AsiaPac Untranched 

Transactions Standard Terms Supplement published by Markit.

CDSClear Service Guide11 has been updated to include Sydney 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 website12.

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

Yours sincerely,

Frank Soussan

Global Head of CDSClear

LCH SA

8https://www.lch.com/system/files/media_root/CDSClear_Section_5_of_the_Procedures_18.05.2022.pdf

9See Appendix

10See Appendix

11 See Appendix

12https://www.lch.com/system/files/media_root/LCH SA_CDSClear_CFTC Rule certification_Public_1 July 2022.pdf
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APPENDIX

Notice of the submission to CDSClear members

LCHSA_CDSClear_iTra

xxAustralia_CFTC%2039%205(b)_Member_Consulation_Memo.docx

LCH SA Reference Guide: CDS Margin Framework (V3.13) (filed separately with the CFTC under Confidential 

Treatment request)

CDSClear Service Guide (filed separately with the CFTC under Confidential Treatment request)

Clearing Supplement (to be published on the website before iTraxx Australia go-live)

CDSClear_Supplemen

t_XX.08.2022.docx