Self-Regulatory Organizations; LCH SA; Notice of Filing of Proposed Rule Change Relating to the Liquidity Risk Model Framework, 4227-4230 [2023-01270]
Download as PDF
<![CDATA[
4227
Federal Register / Vol. 88, No. 15 / Tuesday, January 24, 2023 / Notices
3. Title and purpose of information
collection: Customer Satisfaction
Monitoring; OMB 3220–0192. In
accordance with Executive Order 12862,
the Railroad Retirement Board (RRB)
conducts a number of customer surveys
designed to determine the kinds and
quality of services our beneficiaries,
claimants, employers and members of
the public want and expect, as well as
their satisfaction with existing RRB
services. The information collected is
used by RRB management to monitor
customer satisfaction by determining to
what extent services are satisfactory and
where and to what extent services can
be improved. The surveys are limited to
data collections that solicit strictly
voluntary opinions, and do not collect
information which is required or
regulated. The information collection,
which was first approved by the Office
of Management and Budget (OMB) in
1997, provides the RRB with a generic
clearance authority. This generic
authority allows the RRB to submit a
variety of new or revised customer
survey instruments (needed to timely
implement customer monitoring
activities) to the Office of Management
and Budget (OMB) for expedited review
and approval.
Previous Requests for Comments: The
RRB has already published the initial
60-day notice (87 FR 68755 on
November 16, 2022) required by 44
U.S.C. 3506(c)(2). That request elicited
no comments.
Information Collection Request (ICR)
Title: Customer Satisfaction
Monitoring.
Annual
responses
Form No.
Time
(minutes)
Burden
(hours)
G–201 ..........................................................................................................................................
Web-Site Survey ..........................................................................................................................
Periodic Survey ............................................................................................................................
Focus Groups ..............................................................................................................................
50
300
1,020
250
2
5
12
120
2
25
204
500
Total ......................................................................................................................................
1,620
........................
731
Additional Information or Comments:
Copies of the forms and supporting
documents can be obtained from
Kennisha Tucker at (312) 469–2591 or
Kennisha.Tucker@rrb.gov.
Comments regarding the information
collection should be addressed to Brian
Foster, Railroad Retirement Board, 844
North Rush Street, Chicago, Illinois,
60611–1275 or Brian.Foster@rrb.gov and
to the OMB Desk Officer for the RRB,
Fax: 202–395–6974, Email address:
OIRA_Submission@omb.eop.gov.
Brian Foster,
Clearance Officer.
[FR Doc. 2023–01311 Filed 1–23–23; 8:45 am]
BILLING CODE 7905–01–P
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meetings
2:00 p.m. on Thursday,
January 26, 2023.
PLACE: The meeting will be held via
remote means and/or at the
Commission’s headquarters, 100 F
Street NE, Washington, DC 20549.
STATUS: This meeting will be closed to
the public.
MATTERS TO BE CONSIDERED:
Commissioners, Counsel to the
Commissioners, the Secretary to the
TIME AND DATE:
tkelley on DSK125TN23PROD with NOTICES
OMB Control Number: 3220–0192.
Form(s) submitted: G–201.
Type of request: Extension without
change of a currently approved
collection.
Affected public: Individuals or
households.
Abstract: The Railroad Retirement
Board (RRB) utilizes voluntary customer
surveys to ascertain customer
satisfaction with the RRB in terms of
timeliness, appropriateness, access, and
other measures of quality service.
Surveys involve individuals that are
direct or indirect beneficiaries of RRB
services as well as railroad employers
who must report earnings.
Changes proposed: The RRB proposes
no changes to Form G–201.
VerDate Sep<11>2014
19:17 Jan 23, 2023
Jkt 259001
Commission, and recording secretaries
will attend the closed meeting. Certain
staff members who have an interest in
the matters also may be present.
In the event that the time, date, or
location of this meeting changes, an
announcement of the change, along with
the new time, date, and/or place of the
meeting will be posted on the
Commission’s website at https://
www.sec.gov.
The General Counsel of the
Commission, or his designee, has
certified that, in his opinion, one or
more of the exemptions set forth in 5
U.S.C. 552b(c)(3), (5), (6), (7), (8), 9(B)
and (10) and 17 CFR 200.402(a)(3),
(a)(5), (a)(6), (a)(7), (a)(8), (a)(9)(ii) and
(a)(10), permit consideration of the
scheduled matters at the closed meeting.
The subject matter of the closed
meeting will consist of the following
topics:
CONTACT PERSON FOR MORE INFORMATION:
Institution and settlement of injunctive
actions;
Institution and settlement of administrative
proceedings;
Resolution of litigation claims; and
Other matters relating to examinations and
enforcement proceedings.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on January 4,
2023, Banque Centrale de
Compensation, which conducts
business under the name LCH SA (‘‘LCH
SA’’), filed with the Securities and
Exchange Commission (‘‘Commission’’)
the proposed rule change (‘‘Proposed
At times, changes in Commission
priorities require alterations in the
scheduling of meeting agenda items that
may consist of adjudicatory,
examination, litigation, or regulatory
matters.
PO 00000
Frm 00077
Fmt 4703
Sfmt 4703
For further information; please contact
Vanessa A. Countryman from the Office
of the Secretary at (202) 551–5400.
Authority: 5 U.S.C. 552b.
Dated: January 19, 2023.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2023–01430 Filed 1–20–23; 11:15 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–96694; File No. SR–LCH
SA–2023–001]
Self-Regulatory Organizations; LCH
SA; Notice of Filing of Proposed Rule
Change Relating to the Liquidity Risk
Model Framework
January 18, 2023.
1 15
2 17
E:\FR\FM\24JAN1.SGM
U.S.C. 78s(b)(1).
CFR 240.19b–4.
24JAN1
4228
Federal Register / Vol. 88, No. 15 / Tuesday, January 24, 2023 / Notices
Rule Change’’) described in Items I, II
and III below, which Items have been
primarily prepared by LCH SA. The
Commission is publishing this notice to
solicit comments on the Proposed Rule
Change from interested persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
LCH SA is proposing to amend its
Liquidity Risk Model framework (the
‘‘Framework’’), which describes the
framework by which the LCH SA
Collateral and Liquidity Risk
Management (‘‘CaLRM’’) team assures
that LCH SA has enough cash available
to meet any financial obligations, both
expected and unexpected, that may
arise over the liquidation period for
each of the clearing services that LCH
SA offers.3 The Framework is part of
LCH SA’s Risk Management Procedures
(the ‘‘Procedures’’) and it is consistent
with LCH group liquidity risk policy to
which LCH SA shall comply.
The text of the Proposed Rule Change
is in Exhibit 5 [sic].4
The implementation of the Proposed
Rule Change will be contingent upon
LCH SA’s receipt of all necessary
regulatory approvals, including the
approval by the Commission of the
Proposed Rule Change described herein.
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission,
LCH SA included statements concerning
the purpose of and basis for the
Proposed Rule Change and discussed
any comments it received on the
Proposed Rule Change. The text of these
statements may be examined at the
places specified in Item IV below. LCH
SA has prepared summaries, set forth in
sections A, B, and C below, of the most
significant aspects of such statements.
A. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
tkelley on DSK125TN23PROD with NOTICES
1. Purpose
The Framework is one of several welldeveloped policies and procedures that
3 LCH SA, a subsidiary of LCH Group, manages
its liquidity risk pursuant to, among other policies
and procedures, the Group Liquidity Risk Policy
and the Group Liquidity Plan applicable to each
entity within LCH Group. In addition to its
CDSClear service, LCH SA provides clearing
services in connection with cash equities and
derivatives listed for trading on Euronext
(EquityClear), commodity derivatives listed for
trading on Euronext (CommodityClear), and triparty Repo transactions (RepoClear).
4 Capitalized terms used but not defined herein
shall have the meaning specified in the CDS
Clearing Rule Book or the Clearing Supplement, as
applicable.
VerDate Sep<11>2014
19:17 Jan 23, 2023
Jkt 259001
LCH SA maintains to manage its
liquidity risk, i.e., the risk that LCH SA
will not have enough cash available, in
extreme but plausible circumstances, to
settle margin payments or delivery
obligations when they become due, in
particular upon the default of a clearing
member. Such policies and procedures
include, among others:
(i) the Group Liquidity Risk Policy
which ensures that each CCP of the LCH
group has enough liquid resources on
hand to meet all the expected and
unexpected financial obligations that
arise during the course of the day. The
policy lays out how a CCP will measure
whether there is enough available liquid
resources;
(ii) the LCH SA Liquidity Plan that
sets out the principles and procedures
for liquidity management within LCH
SA. Its main objectives are to:
• Ensure the liquidity adequacy of
LCH SA at all times in accordance with
policies set by the appropriate
governance authority monitored and
reported by Risk Management;
• Ensure that liquidity management
and resources are aligned with LCH SA
operational requirements to meet
payment obligations as they fall due
under Business as Usual and stressed
liquidity conditions;
• Ensure effective liquidity risk
identification and escalation within
Collateral and Liquidity Management
(‘‘CaLM’’) service and other relevant
departments with LCH SA.
(iii) the Group Financial Resource
Adequacy Plan which details the
standards by which financial resources
should be assessed against member
exposures. This includes Variation
Margins, Initial Margins, Margin AddOns for liquidity risk, concentration
risk, wrong way risk where appropriate,
as well as the sizing and re-sizing of the
default funds across the LCH Group
CCPs;
(iv) the Group Collateral Risk Policy;
which sets out the standards for the
management of collateral risk across the
LCH Group CCPs and ensures that CCPs
must have a robust mechanism in place
to process and control the collateral
posted by members;
(v) the Group Investment Risk Policy
which sets out the standards for the
management of investment risk across
the LCH Group CCPs;
(vi) the LCH SA Collateral Control
Framework which describes the actions
undertaken by the CaLRM team to
implement the collateral limits laid out
in the Group Collateral Risk Policy and
to ensure that the prices integrated on
a daily basis by margin team are
accurate and fairly priced.
PO 00000
Frm 00078
Fmt 4703
Sfmt 4703
In brief, the Framework: (i) identifies
LCH SA’s sources of liquidity and
corresponding liquidity risks; (ii)
identifies LCH SA’s liquidity
requirements with respect to its
members and its interoperable central
counterparty (‘‘CCP’’); 5 (iii) describes
the metrics and limits that LCH SA
monitors; and (iv) describes the
scenarios under which these metrics are
computed.
(i) Default Fund reduction and
intraday injection of liquidity in the
settlement platform to be considered in
operational target.6
As per a recommendation from LCH
SA’s independent risk model validation
department,7 LCH SA is proposing to
amend the Framework in order to
address more accurately its liquidity
requirements in the event of a Default
Fund (‘‘DF’’) scheduled reduction 8 or
an extraordinary intraday liquidity
injection 9 in the settlement platform.
Before any DF change there exists a
latency between the final approval of
the new DF total amount and the
settlement of the new contributions. To
properly reflect the decrease of the DF
in the calculation of the operational
target until the settlement of the
contributions the new proposed
framework will include the following
enhancements.
• The DF recomputed is compared to
the DF actually paid and in the account
of LCH SA.
• The amount that will reported will
be the following.
Æ only global drain of liquidity will
be considered and added to the
operational target because they
5 LCH SA has an interoperability agreement with
Cassa di Compensazione e Garanzia (‘‘CC&G’’), an
Italian CCP, pursuant to which LCH SA’s clearing
members and CC&G’s clearing members are able to
benefit from common clearing services without
having to join the other CCP. Each CCP is a clearing
member of the other one with a particular status
when accessing the clearing system of the other
counterparty.
6 The Operational target represents the amount of
liquidity to be held to satisfy the liquidity needs
related to the operational management of the CCP
in a stressed environment that does not lead to a
member’s default.
7 Only proposed changes described in (i) are due
to model validation recommendation.
8 Every first business day of the month the CCP
recalibrate its DF amounts according to its internal
procedures. If the amounts recalibrated are lower
than the amounts in force resources will be
returned to members accordingly within the 4th
business day of the month. Moreover only global
reduction in DF amounts are considered in the
calculation of operational target. Increases in DF
would augment the available liquidity and reduce
the Operational target and therefore are not
considered.
9 When volumes in the settlement platform are
particularly high the treasury department may need
to inject additional liquidity during the day to
ensure the smooth function of the settlement flows.
E:\FR\FM\24JAN1.SGM
24JAN1
tkelley on DSK125TN23PROD with NOTICES
Federal Register / Vol. 88, No. 15 / Tuesday, January 24, 2023 / Notices
represent a scheduled liquidity outflow
that needs to be covered by adequate
liquidity resources by the CCP,
Æ Eventual negative amounts will be
reported in the operational target for all
the days from the beginning of the
month till settlement date.
Moreover, according to the current
internal fails monitoring operating
mode, a threshold of 1 bln Euro is set
to request a formal approval by the LCH
SA Chief Risk Officer and the Head of
LCH SA CaLM or their delegates, before
allowing the LCH SA Operations team
to inject extraordinary liquidity intraday
in the settlement platform.
The current liquidity framework does
not take into consideration eventual
extraordinary liquidity injection in the
settlement system in the calculation of
the operational target. The revised
liquidity framework, while maintaining
consistency with the current procedure,
will require a rerun of the operational
target anytime a significant amount
(bigger or equal than 1 bln Euro) of
liquidity is injected intraday. Eventual
intraday injection will be subtracted
from the liquidity resources available
that are compared against the
operational target to ensure that LCH SA
has adequate liquidity to satisfy the
needs related to the operational
management of the CCP.
(ii) Committed credit line.
LCH SA is proposing clarifications to
the Framework to reflect the final
closure of one committed credit line
that took place the December 15th 2021.
The committee credit line with Kas
bank has been replaced by a multicurrency overdraft facility of Ö10
million with an International bank. In
addition the CCP put in place a secured
committed intraday credit line with
Norges Bank to cover the non-Euro VM
payments for the Euronext Oslo listed
derivatives activity. The amount of the
Norges bank credit line is flexible and
is determined on a daily basis based on
the collateral deposited with Euroclear
Bank.
Finally, in accordance with what is
defined in the SA liquidity Plan, it has
been reported in the Framework the list
of options that LCH SA has to address
in a default situation any liquidity
shortfall in a currency different from
EUR. These are:
• The non EUR cash deposited as
collateral
• The sale of the non EUR securities of
the defaulting member
• Repo transactions
Æ Bilateral Repo transactions (Non
Euro cash taker and Non Euro
collateral giver)
Æ Cross-currency Bilateral Repo (Non
VerDate Sep<11>2014
19:17 Jan 23, 2023
Jkt 259001
Euro cash taker and Euro collateral
giver)
Æ Cross-currency Triparty Repo (Non
Euro cash taker and Euro collateral
giver)
• The use of the multicurrency
overdraft facility with an International
Bank
• Use of the FX spot market
transactions
• ECB weekly tender in USD (last
resort). Given its banking status, LCH
SA has access to the ECB Open
market operations in USD.
• Replace LCH SA’s liabilities in non
EUR by EUR as per clearing rulebook
(iii) Updated figure of maximum limit
of liquidity injected in the settlement
system to ease settlement.
In the section of the Framework that
describes how the settlement of physical
securities is made and how such activity
impact the liquidity of the CCP, LCH SA
is updating the maximum level of
liquidity to be injected daily in the
settlement system to ease settlement
flow.
In particular, the CCP have defined
for each Central Securities Depository
(CSD) in which settlement takes place
an amount of liquidity that is injected
everyday to ease the settlement flow and
such liquidity consumption is
monitored by Operation team during the
settlement cycle that occurs throughout
the day.
The updated figures have been
defined as a function of the actual
settlement activity observed by
Operations team to optimize the
management of the CCP liquidity.
Moreover, in the same section of the
Framework, it is described the
mechanism of auto-collateralization
which is a feature of T2S that enables
to obtain the liquidity necessary to the
finalization of transactions by pledging
the security underlying the transaction
at the Central Bank to get cash. It has
been clarified that LCH SA successfully
managed to test the transfer to its 3G
pool (central bank liquidity) of
securities coming from settlement for
Italy, Spain and Germany transactions.
2. Statutory Basis
LCH SA has determined that the
Proposed Rule Change is consistent
with the requirements of section 17A of
the Act 10 and regulations thereunder
applicable to it. section 17A(b)(3)(F) of
the Act requires, inter alia, that the rules
of a clearing agency ‘‘assure the
safeguarding of securities and funds that
are in its custody or control or for which
it is responsible.’’ 11
10 15
11 15
PO 00000
U.S.C. 78q–1.
U.S.C. 78q–1(b)(3)(F).
Frm 00079
Fmt 4703
Sfmt 4703
4229
LCH SA believes that the Proposed
Rule Change is consistent with the
requirements of section 17A of the Act
and regulations thereunder applicable to
it, including Commission Rule 17Ad–
22(e). In particular, section 17A(b)(3)(F)
of the Act requires, inter alia, that the
rules of a clearing agency be designed to
‘‘promote the prompt and accurate
clearance and settlement of derivatives
agreements, contracts, and
transactions’’. The proposed changes in
the Operational target described above
under Item 3(1)(i) enhance the ability of
LCH SA to manage its liquidity during
the daily services it provides by
properly anticipating potential
scheduled needs (Default Fund
reductions) as well as ensuring that the
liquidity available is always sufficient to
continue the clearing and settlement
operations also in the event of
extraordinary intraday liquidity
injection in the settlement systems. The
new proposed rule will further
strengthen the robustness of the
liquidity management of the Clearing
Agency thus contributing to the prompt
and accurate clearance and settlement of
securities transactions. The proposed
changes described above also provide
the details about the means the Clearing
Agency has to deal with liquidity
shortfalls in non Euros that may arise
during a default situation. By being
allowed to leverage on different options
the Clearing Agency has the ability to
address such liquidity shortfalls without
impacting its services and therefore
promoting the accurate clearance and
settlement of securities transactions.
Finally, the proposed changes described
under item (1) (iii) represent mainly an
update of the figures of the liquidity
amounts used for easing settlement in
the different CSD that LCH SA uses.
This update is the result of a periodic
review performed by the LCH SA
Operation team to optimize the liquidity
management of the clearing house. By
ensuring that the liquidity injected is
proportional to the settlement activity
the clearing house is promoting the
prompt and accurate settlement of
securities.
As discussed above, LCH SA is
proposing to amend the Framework to
address specifically LCH SA’s liquidity
requirements in the event of Default
Fund reduction or extraordinary
intraday injection of liquidity in the
settlement platforms. The proposed
amendments will assist LCH SA in
defining more accurately its liquidity
requirements by assuring that LCH SA
will maintain appropriate levels of
liquidity. Specifically, the amended
Framework will anticipate the effect of
E:\FR\FM\24JAN1.SGM
24JAN1
4230
Federal Register / Vol. 88, No. 15 / Tuesday, January 24, 2023 / Notices
scheduled reductions to the Default
Fund amount or recalculate the
liquidity indicators whenever
significant extraordinary liquidity is
injected intraday in the settlement
systems.
The policies and procedures set out in
the amended Framework, therefore, are
designed to enhance LCH SA’s ability to
measure, monitor, and manage the
liquidity risk that may arise in
connection with its activities as a
covered clearing agency. As such the
amendments to the Framework
regarding LCH SA’s liquidity
requirements are consistent with the
requirements of Regulation 17dA–
22(e)(7)(i) 12 requiring that a covered
clearing agency’s policies and
procedures be reasonably designed to
ensure that it maintains sufficient liquid
resources in all relevant currencies to
effect same-day and, where appropriate,
intraday and multiday settlement of
payment obligations with a high degree
of confidence under a wide range of
potential stress scenarios that includes
the default of the participant family that
would generate the largest aggregate
payment obligation for it in extreme but
plausible market conditions and also
with Regulation 17dA–22(e)(7)(ii) 13
requiring a covered clearing agency to
establish, implement, maintain and
enforce written policies and procedures
reasonably designed to ensure that it
holds qualifying liquid resources
sufficient to meet the minimum
liquidity resource requirement in each
relevant currency for which the covered
clearing agency has payment obligations
owed to clearing members.
tkelley on DSK125TN23PROD with NOTICES
B. Clearing Agency’s Statement on
Burden on Competition
CFR 240.17Ad–22(e)(7)(i).
CFR 240.17Ad–22(e)(7)(ii).
14 15 U.S.C. 78q–1(b)(3)(I).
13 17
VerDate Sep<11>2014
19:17 Jan 23, 2023
Jkt 259001
Written comments relating to the
proposed rule change have not been
solicited or received. LCH SA will
notify the Commission of any written
comments received by LCH SA.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) by order approve or disapprove
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
LCH SA–2023–001 on the subject line.
Paper Comments
Section 17A(b)(3)(I) of the Act
requires that the rules of a clearing
agency not impose any burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Act.14 LCH SA does not
believe the Proposed Rule Change
would have any impact, or impose any
burden, on competition. The Proposed
Rule Change does not address any
competitive issue or have any impact on
the competition among central
counterparties. LCH SA operates an
open access model, and the Proposed
Rule Change will have no effect on this
model.
12 17
C. Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received From Members,
Participants or Others
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–LCH SA–2023–001. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
PO 00000
Frm 00080
Fmt 4703
Sfmt 4703
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of LCH SA and on LCH SA’s
website at: https://www.lch.com/
resources/rulebooks/proposed-rulechanges. All comments received will be
posted without change. Persons
submitting comments are cautioned that
we do not redact or edit personal
identifying information from comment
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–LCH
SA–2023–001 and should be submitted
on or before February 14, 2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–01270 Filed 1–23–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[SEC File No. 270–340, OMB Control No.
3235–0375]
Submission for OMB Review;
Comment Request; Extension:
Schedule 13E–4F
Upon Written Request Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.), the Securities
and Exchange Commission
(‘‘Commission’’) has submitted to the
Office of Management and Budget this
request for extension of the previously
approved collection of information
discussed below.
Schedule 13E–4F (17 CFR 240.13e102) may be used by an issuer that is
incorporated or organized under the
laws of Canada to make a cash tender
or exchange offer for the issuer’s own
securities if less than 40 percent of the
class of such issuer’s securities
outstanding that are the subject of the
tender offer is held by U.S. holders. The
15 17
E:\FR\FM\24JAN1.SGM
CFR 200.30–3(a)(12).
24JAN1
]]>Agencies
[Federal Register Volume 88, Number 15 (Tuesday, January 24, 2023)]
[Notices]
[Pages 4227-4230]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-01270]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96694; File No. SR-LCH SA-2023-001]
Self-Regulatory Organizations; LCH SA; Notice of Filing of
Proposed Rule Change Relating to the Liquidity Risk Model Framework
January 18, 2023.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on January 4, 2023, Banque Centrale de Compensation, which conducts
business under the name LCH SA (``LCH SA''), filed with the Securities
and Exchange Commission (``Commission'') the proposed rule change
(``Proposed
[[Page 4228]]
Rule Change'') described in Items I, II and III below, which Items have
been primarily prepared by LCH SA. The Commission is publishing this
notice to solicit comments on the Proposed Rule Change from interested
persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
LCH SA is proposing to amend its Liquidity Risk Model framework
(the ``Framework''), which describes the framework by which the LCH SA
Collateral and Liquidity Risk Management (``CaLRM'') team assures that
LCH SA has enough cash available to meet any financial obligations,
both expected and unexpected, that may arise over the liquidation
period for each of the clearing services that LCH SA offers.\3\ The
Framework is part of LCH SA's Risk Management Procedures (the
``Procedures'') and it is consistent with LCH group liquidity risk
policy to which LCH SA shall comply.
---------------------------------------------------------------------------
\3\ LCH SA, a subsidiary of LCH Group, manages its liquidity
risk pursuant to, among other policies and procedures, the Group
Liquidity Risk Policy and the Group Liquidity Plan applicable to
each entity within LCH Group. In addition to its CDSClear service,
LCH SA provides clearing services in connection with cash equities
and derivatives listed for trading on Euronext (EquityClear),
commodity derivatives listed for trading on Euronext
(CommodityClear), and tri-party Repo transactions (RepoClear).
---------------------------------------------------------------------------
The text of the Proposed Rule Change is in Exhibit 5 [sic].\4\
---------------------------------------------------------------------------
\4\ Capitalized terms used but not defined herein shall have the
meaning specified in the CDS Clearing Rule Book or the Clearing
Supplement, as applicable.
---------------------------------------------------------------------------
The implementation of the Proposed Rule Change will be contingent
upon LCH SA's receipt of all necessary regulatory approvals, including
the approval by the Commission of the Proposed Rule Change described
herein.
II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, LCH SA included statements
concerning the purpose of and basis for the Proposed Rule Change and
discussed any comments it received on the Proposed Rule Change. The
text of these statements may be examined at the places specified in
Item IV below. LCH SA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
1. Purpose
The Framework is one of several well-developed policies and
procedures that LCH SA maintains to manage its liquidity risk, i.e.,
the risk that LCH SA will not have enough cash available, in extreme
but plausible circumstances, to settle margin payments or delivery
obligations when they become due, in particular upon the default of a
clearing member. Such policies and procedures include, among others:
(i) the Group Liquidity Risk Policy which ensures that each CCP of
the LCH group has enough liquid resources on hand to meet all the
expected and unexpected financial obligations that arise during the
course of the day. The policy lays out how a CCP will measure whether
there is enough available liquid resources;
(ii) the LCH SA Liquidity Plan that sets out the principles and
procedures for liquidity management within LCH SA. Its main objectives
are to:
Ensure the liquidity adequacy of LCH SA at all times in
accordance with policies set by the appropriate governance authority
monitored and reported by Risk Management;
Ensure that liquidity management and resources are aligned
with LCH SA operational requirements to meet payment obligations as
they fall due under Business as Usual and stressed liquidity
conditions;
Ensure effective liquidity risk identification and
escalation within Collateral and Liquidity Management (``CaLM'')
service and other relevant departments with LCH SA.
(iii) the Group Financial Resource Adequacy Plan which details the
standards by which financial resources should be assessed against
member exposures. This includes Variation Margins, Initial Margins,
Margin Add-Ons for liquidity risk, concentration risk, wrong way risk
where appropriate, as well as the sizing and re-sizing of the default
funds across the LCH Group CCPs;
(iv) the Group Collateral Risk Policy; which sets out the standards
for the management of collateral risk across the LCH Group CCPs and
ensures that CCPs must have a robust mechanism in place to process and
control the collateral posted by members;
(v) the Group Investment Risk Policy which sets out the standards
for the management of investment risk across the LCH Group CCPs;
(vi) the LCH SA Collateral Control Framework which describes the
actions undertaken by the CaLRM team to implement the collateral limits
laid out in the Group Collateral Risk Policy and to ensure that the
prices integrated on a daily basis by margin team are accurate and
fairly priced.
In brief, the Framework: (i) identifies LCH SA's sources of
liquidity and corresponding liquidity risks; (ii) identifies LCH SA's
liquidity requirements with respect to its members and its
interoperable central counterparty (``CCP''); \5\ (iii) describes the
metrics and limits that LCH SA monitors; and (iv) describes the
scenarios under which these metrics are computed.
---------------------------------------------------------------------------
\5\ LCH SA has an interoperability agreement with Cassa di
Compensazione e Garanzia (``CC&G''), an Italian CCP, pursuant to
which LCH SA's clearing members and CC&G's clearing members are able
to benefit from common clearing services without having to join the
other CCP. Each CCP is a clearing member of the other one with a
particular status when accessing the clearing system of the other
counterparty.
---------------------------------------------------------------------------
(i) Default Fund reduction and intraday injection of liquidity in
the settlement platform to be considered in operational target.\6\
---------------------------------------------------------------------------
\6\ The Operational target represents the amount of liquidity to
be held to satisfy the liquidity needs related to the operational
management of the CCP in a stressed environment that does not lead
to a member's default.
---------------------------------------------------------------------------
As per a recommendation from LCH SA's independent risk model
validation department,\7\ LCH SA is proposing to amend the Framework in
order to address more accurately its liquidity requirements in the
event of a Default Fund (``DF'') scheduled reduction \8\ or an
extraordinary intraday liquidity injection \9\ in the settlement
platform.
---------------------------------------------------------------------------
\7\ Only proposed changes described in (i) are due to model
validation recommendation.
\8\ Every first business day of the month the CCP recalibrate
its DF amounts according to its internal procedures. If the amounts
recalibrated are lower than the amounts in force resources will be
returned to members accordingly within the 4th business day of the
month. Moreover only global reduction in DF amounts are considered
in the calculation of operational target. Increases in DF would
augment the available liquidity and reduce the Operational target
and therefore are not considered.
\9\ When volumes in the settlement platform are particularly
high the treasury department may need to inject additional liquidity
during the day to ensure the smooth function of the settlement
flows.
---------------------------------------------------------------------------
Before any DF change there exists a latency between the final
approval of the new DF total amount and the settlement of the new
contributions. To properly reflect the decrease of the DF in the
calculation of the operational target until the settlement of the
contributions the new proposed framework will include the following
enhancements.
The DF recomputed is compared to the DF actually paid and
in the account of LCH SA.
The amount that will reported will be the following.
[cir] only global drain of liquidity will be considered and added
to the operational target because they
[[Page 4229]]
represent a scheduled liquidity outflow that needs to be covered by
adequate liquidity resources by the CCP,
[cir] Eventual negative amounts will be reported in the operational
target for all the days from the beginning of the month till settlement
date.
Moreover, according to the current internal fails monitoring
operating mode, a threshold of 1 bln Euro is set to request a formal
approval by the LCH SA Chief Risk Officer and the Head of LCH SA CaLM
or their delegates, before allowing the LCH SA Operations team to
inject extraordinary liquidity intraday in the settlement platform.
The current liquidity framework does not take into consideration
eventual extraordinary liquidity injection in the settlement system in
the calculation of the operational target. The revised liquidity
framework, while maintaining consistency with the current procedure,
will require a rerun of the operational target anytime a significant
amount (bigger or equal than 1 bln Euro) of liquidity is injected
intraday. Eventual intraday injection will be subtracted from the
liquidity resources available that are compared against the operational
target to ensure that LCH SA has adequate liquidity to satisfy the
needs related to the operational management of the CCP.
(ii) Committed credit line.
LCH SA is proposing clarifications to the Framework to reflect the
final closure of one committed credit line that took place the December
15th 2021. The committee credit line with Kas bank has been replaced by
a multi-currency overdraft facility of [euro]10 million with an
International bank. In addition the CCP put in place a secured
committed intraday credit line with Norges Bank to cover the non-Euro
VM payments for the Euronext Oslo listed derivatives activity. The
amount of the Norges bank credit line is flexible and is determined on
a daily basis based on the collateral deposited with Euroclear Bank.
Finally, in accordance with what is defined in the SA liquidity
Plan, it has been reported in the Framework the list of options that
LCH SA has to address in a default situation any liquidity shortfall in
a currency different from EUR. These are:
The non EUR cash deposited as collateral
The sale of the non EUR securities of the defaulting member
Repo transactions
[cir] Bilateral Repo transactions (Non Euro cash taker and Non Euro
collateral giver)
[cir] Cross-currency Bilateral Repo (Non Euro cash taker and Euro
collateral giver)
[cir] Cross-currency Triparty Repo (Non Euro cash taker and Euro
collateral giver)
The use of the multicurrency overdraft facility with an
International Bank
Use of the FX spot market transactions
ECB weekly tender in USD (last resort). Given its banking
status, LCH SA has access to the ECB Open market operations in USD.
Replace LCH SA's liabilities in non EUR by EUR as per clearing
rulebook
(iii) Updated figure of maximum limit of liquidity injected in the
settlement system to ease settlement.
In the section of the Framework that describes how the settlement
of physical securities is made and how such activity impact the
liquidity of the CCP, LCH SA is updating the maximum level of liquidity
to be injected daily in the settlement system to ease settlement flow.
In particular, the CCP have defined for each Central Securities
Depository (CSD) in which settlement takes place an amount of liquidity
that is injected everyday to ease the settlement flow and such
liquidity consumption is monitored by Operation team during the
settlement cycle that occurs throughout the day.
The updated figures have been defined as a function of the actual
settlement activity observed by Operations team to optimize the
management of the CCP liquidity.
Moreover, in the same section of the Framework, it is described the
mechanism of auto-collateralization which is a feature of T2S that
enables to obtain the liquidity necessary to the finalization of
transactions by pledging the security underlying the transaction at the
Central Bank to get cash. It has been clarified that LCH SA
successfully managed to test the transfer to its 3G pool (central bank
liquidity) of securities coming from settlement for Italy, Spain and
Germany transactions.
2. Statutory Basis
LCH SA has determined that the Proposed Rule Change is consistent
with the requirements of section 17A of the Act \10\ and regulations
thereunder applicable to it. section 17A(b)(3)(F) of the Act requires,
inter alia, that the rules of a clearing agency ``assure the
safeguarding of securities and funds that are in its custody or control
or for which it is responsible.'' \11\
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78q-1.
\11\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
LCH SA believes that the Proposed Rule Change is consistent with
the requirements of section 17A of the Act and regulations thereunder
applicable to it, including Commission Rule 17Ad-22(e). In particular,
section 17A(b)(3)(F) of the Act requires, inter alia, that the rules of
a clearing agency be designed to ``promote the prompt and accurate
clearance and settlement of derivatives agreements, contracts, and
transactions''. The proposed changes in the Operational target
described above under Item 3(1)(i) enhance the ability of LCH SA to
manage its liquidity during the daily services it provides by properly
anticipating potential scheduled needs (Default Fund reductions) as
well as ensuring that the liquidity available is always sufficient to
continue the clearing and settlement operations also in the event of
extraordinary intraday liquidity injection in the settlement systems.
The new proposed rule will further strengthen the robustness of the
liquidity management of the Clearing Agency thus contributing to the
prompt and accurate clearance and settlement of securities
transactions. The proposed changes described above also provide the
details about the means the Clearing Agency has to deal with liquidity
shortfalls in non Euros that may arise during a default situation. By
being allowed to leverage on different options the Clearing Agency has
the ability to address such liquidity shortfalls without impacting its
services and therefore promoting the accurate clearance and settlement
of securities transactions. Finally, the proposed changes described
under item (1) (iii) represent mainly an update of the figures of the
liquidity amounts used for easing settlement in the different CSD that
LCH SA uses. This update is the result of a periodic review performed
by the LCH SA Operation team to optimize the liquidity management of
the clearing house. By ensuring that the liquidity injected is
proportional to the settlement activity the clearing house is promoting
the prompt and accurate settlement of securities.
As discussed above, LCH SA is proposing to amend the Framework to
address specifically LCH SA's liquidity requirements in the event of
Default Fund reduction or extraordinary intraday injection of liquidity
in the settlement platforms. The proposed amendments will assist LCH SA
in defining more accurately its liquidity requirements by assuring that
LCH SA will maintain appropriate levels of liquidity. Specifically, the
amended Framework will anticipate the effect of
[[Page 4230]]
scheduled reductions to the Default Fund amount or recalculate the
liquidity indicators whenever significant extraordinary liquidity is
injected intraday in the settlement systems.
The policies and procedures set out in the amended Framework,
therefore, are designed to enhance LCH SA's ability to measure,
monitor, and manage the liquidity risk that may arise in connection
with its activities as a covered clearing agency. As such the
amendments to the Framework regarding LCH SA's liquidity requirements
are consistent with the requirements of Regulation 17dA-22(e)(7)(i)
\12\ requiring that a covered clearing agency's policies and procedures
be reasonably designed to ensure that it maintains sufficient liquid
resources in all relevant currencies to effect same-day and, where
appropriate, intraday and multiday settlement of payment obligations
with a high degree of confidence under a wide range of potential stress
scenarios that includes the default of the participant family that
would generate the largest aggregate payment obligation for it in
extreme but plausible market conditions and also with Regulation 17dA-
22(e)(7)(ii) \13\ requiring a covered clearing agency to establish,
implement, maintain and enforce written policies and procedures
reasonably designed to ensure that it holds qualifying liquid resources
sufficient to meet the minimum liquidity resource requirement in each
relevant currency for which the covered clearing agency has payment
obligations owed to clearing members.
---------------------------------------------------------------------------
\12\ 17 CFR 240.17Ad-22(e)(7)(i).
\13\ 17 CFR 240.17Ad-22(e)(7)(ii).
---------------------------------------------------------------------------
B. Clearing Agency's Statement on Burden on Competition
Section 17A(b)(3)(I) of the Act requires that the rules of a
clearing agency not impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act.\14\ LCH SA does
not believe the Proposed Rule Change would have any impact, or impose
any burden, on competition. The Proposed Rule Change does not address
any competitive issue or have any impact on the competition among
central counterparties. LCH SA operates an open access model, and the
Proposed Rule Change will have no effect on this model.
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------
C. Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants or Others
Written comments relating to the proposed rule change have not been
solicited or received. LCH SA will notify the Commission of any written
comments received by LCH SA.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-LCH SA-2023-001 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-LCH SA-2023-001. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of LCH SA and on LCH SA's website
at: https://www.lch.com/resources/rulebooks/proposed-rule-changes. All
comments received will be posted without change. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-LCH SA-2023-001 and should
be submitted on or before February 14, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
---------------------------------------------------------------------------
\15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-01270 Filed 1-23-23; 8:45 am]
BILLING CODE 8011-01-P
