Self-Regulatory Organizations; LCH SA; Order Approving Proposed Rule Change Relating to Liquidity Risk Modelling Framework, 57467-57479 [2024-15401]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 89, Number 135 (Monday, July 15, 2024)]
[Notices]
[Pages 57467-57479]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-15401]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100470; File No. SR-LCH SA-2023-007]


Self-Regulatory Organizations; LCH SA; Order Approving Proposed 
Rule Change Relating to Liquidity Risk Modelling Framework

July 9, 2024.

I. Introduction

    On December 22, 2023, Banque Centrale de Compensation, which 
conducts business under the name LCH SA (``LCH SA''), filed with the 
Securities and Exchange Commission (``Commission''), pursuant to 
Section 19(b)(1) of the Securities Exchange Act

[[Page 57468]]

of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule 
change (``Proposed Rule Change'') to amend its Liquidity Risk Modelling 
Framework (the ``Framework''). The Proposed Rule Change was published 
for comment in the Federal Register on January 11, 2024.\3\ On February 
21, 2024, pursuant to Section 19(b)(2) of the Act,\4\ the Commission 
designated a longer period within which to approve, disapprove, or 
institute proceedings to determine whether to approve or disapprove the 
Proposed Rule Change, from February 25, 2024 to April 10, 2024.\5\ On 
April 8, 2024, the Commission instituted proceedings, pursuant to 
Section 19(b)(2)(B) of the Act,\6\ to determine whether to approve or 
disapprove the Proposed Rule Change.\7\ The Commission has not received 
any comments on the Proposed Rule Change. For the reasons discussed 
below, the Commission is approving the Proposed Rule Change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Exchange Act Release No. 99277 (Jan. 5, 2024), 89 FR 1952 
(Jan. 11, 2024) (File No. SR-LCH SA-2023-007) (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ Self-Regulatory Organizations; LCH SA; Notice of Designation 
of Longer Period for Commission Action on Proposed Rule Change 
Relating to the Liquidity Risk Modelling Framework, Exchange Act 
Release No. 99569 (Feb. 21, 2024), 89 FR 14538 (Feb. 27, 2024) (File 
No. SR-LCH SA-2023-007).
    \6\ 15 U.S.C. 78s(b)(2)(B).
    \7\ Self-Regulatory Organizations; LCH SA; Order Instituting 
Proceedings to Determine Whether to Approve or Disapprove a Proposed 
Rule Change Relating to Liquidity Risk Modeling Framework, Exchange 
Act Release No. 99922 (Apr. 8, 2024), 89 FR 25906 (Apr. 12, 2024) 
(File No. SR-LCH SA-2023-007).
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II. Description of the Proposed Rule Change

(i) Background

    LCH SA is a clearing agency that offers clearing of, among other 
things, credit-default swaps (``CDS'').\8\ LCH SA is registered with 
the Commission for clearing CDS that are security-based swaps and with 
the Commodity Futures Trading Commission for clearing CDS that are 
swaps. As part of its clearing business, LCH SA maintains cash and 
other liquid financial resources to meet its financial obligations. The 
Framework and other procedures describe how LCH SA maintains these 
resources and manages its liquidity risk, meaning the risk that LCH SA 
will not have enough liquid financial resources to meet its financial 
obligations.\9\ The Framework specifically describes how LCH SA's 
Collateral and Liquidity Risk Management department (``CaLRM'') 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 LCH SA's clearing services.
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    \8\ Capitalized terms used but not defined herein have the 
meanings specified in the LCH SA Rule Book or Framework as 
applicable.
    \9\ LCH SA, a subsidiary of LCH Group and an indirect subsidiary 
of the London Stock Exchange Group plc (``LSEG''), 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).
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    The Framework describes LCH SA's liquidity in terms of sources and 
needs. The Framework lists various sources of liquidity for LCH SA, 
such as cash and non-cash collateral provided by Clearing Members to 
meet their margin and default fund requirements. With respect to needs 
for liquidity, the Framework places these into three broad categories: 
(i) those arising from LCH SA's business-as-usual operations; (ii) 
those arising from Clearing Members' defaults; and (iii) those arising 
from the default of LCH SA's interoperating central counterparty 
(``CCP'').
    Section 1 of the Framework describes the scope, purpose, and use of 
the Framework. Sections 2 and 3 describe certain limitations to, and 
justifications for, how LCH SA models its liquidity sources and needs. 
Section 4 details how LCH SA models its liquidity sources and needs. 
Section 5 describes how LCH SA tests and monitors the performance of 
these models. Finally, Section 6 contains certain additional 
information relevant to the Framework, presented as appendices to the 
Framework.
    The purpose of the Proposed Rule Change is to make a variety of 
updates to the Framework. These updates are described below according 
to the section of the Framework where they appear. In general, these 
changes will: (a) revise the manner in which settlement obligation 
liquidity requirements are calculated; (b) revise the way LCH SA 
determines the potential value of liquidity obtained from pledging 
securities to the Banque de France (``BdF''); (c) extend the length of 
time for which LCH SA must maintain liquidity resources sufficient to 
meet its liquidity requirements; (d) include the liquidity needs 
generated by the expiration of physically settled stock futures in 
determining overall liquidity needs; and (e) require LCH SA, in 
calculating its required liquidity resources, to consider that Clearing 
Members may switch from depositing non-cash collateral in a Full Title 
Transfer Account (``FTTA'') to depositing non-cash collateral instead 
in a Single Pledged Account (``SPA'').

(ii) Section 1 Changes to the Framework

    Section 1 of the Framework details the scope, purpose, and use of 
the Framework. The Proposed Rule Change would make various updates to 
this section, as described below.
    Currently, Section 1.1, titled Model Objective, Business Scope and 
Intended Use, states that the Framework is owned by CaLRM and is 
reviewed on at least a quarterly basis. Currently, Section 1.1 provides 
that the Framework is reviewed at least on a quarterly basis. LCH SA is 
proposing to change the frequency the Framework is reviewed from 
quarterly to annually. LCH SA is making this change to align the review 
of the Framework with the frequency of the review of the Group 
Liquidity Risk Policy.
    Section 1.1.1, titled Reminder of SA's activities, contains an 
overall description of LCH SA's activities as a clearing agency. Among 
other things, Section 1.1.1 currently explains that LCH SA maintains 
default funds which aim to cover the two largest losses that may exceed 
the losses covered by initial margins. LCH SA is proposing to revise 
this description slightly by deleting the phrase ``two largest,'' and 
noting instead that default funds are calibrated on the assumption of 
default of the two most exposed groups of affiliated Clearing Members 
(``Clearing Member Groups'').
    The Proposed Rule Change would next amended Section 1.1.2, titled 
Investment Activities. To ensure that the Framework provides an 
accurate description of the Collateral and Liquidity Management 
(``CaLM'') Front Office team, LCH SA is clarifying the description of 
this team in this section. LCH SA's CaLM team manages LCH SA's 
investment activities, among other responsibilities, and the current 
Framework describes CaLM's tasks related to investment activities as 
liquidity management, non-cash collateral settlement in case of a 
Clearing Member's default, and investment management of cash margins, 
default funds, and other financial resources. The Proposed Rule Change 
would revise this description to state that CaLM's task is non-cash 
collateral liquidation, rather than settlement, in addition to 
liquidity and investment management.
    Section 1.1.3, titled Interoperability of CC&G, describes the 
interoperability link that LCH SA maintains with another CCP, Cassa di 
Compensazione e

[[Page 57469]]

Garanzia, or ``CC&G,'' which has been renamed ``Euronext Clearing.'' 
The proposed rule change would reflect the renaming by replacing 
references to CC&G with references to Euronext Clearing, including in 
the title to this section.
    LCH SA is also making changes to reflect the other policies and 
procedures, in addition to the Framework, that it employs to manage its 
liquidity risk. As noted above, LCH SA is a subsidiary of LCH Group and 
an indirect subsidiary of LSEG. As such, LCH SA manages its liquidity 
risk using the Group Liquidity Risk Policy and the Group Liquidity Plan 
(which are applicable to each entity within LCH Group). LCH SA uses 
these other policies in addition to the Framework. The Proposed Rule 
Change would update Section 1.3, titled Model dependency and 
interconnectivity, to include summaries of these other policies, 
including the LCH SA Liquidity Plan, Group Liquidity Risk Policy, Group 
Financial Resource Adequacy Policy, Group Collateral Risk Policy, Group 
Investment Risk Policy, LCH SA Collateral Control Framework, and Group 
Risk Policy: Default Management.
    The Proposed Rule Change would next amend Section 1.4, titled Model 
Governance. Here the Proposed Rule Change would add a footnote to 
clarify that the core liquidity reserve stress tests are performed 
monthly according to the Liquidity Risk Policy. LCH is making this 
change to align the Framework with LCH SA's Liquidity Risk Policy.
    Section 1.6.1, titled Liquidity Sources, describes LCH SA's sources 
of liquidity. These sources include, among others, cash posted by 
Clearing Members to meet margin and default fund requirements and non-
cash collateral posted by Clearing Members. Section 1.6.1 also 
describes the tools that CaLM would use to meet LCH SA's non-Euro 
liquidity requirements in case of a Clearing Member's default. Section 
1.6.1 currently describes these tools as committed liquidity lines 
pledged with assets from margin collateral or investments and a rule 
book arrangement that allows LCH SA to pay its obligations in Euros. 
The Proposed Rule Change would add further explanation of the tools 
available to CaLM to meet LCH SA's non-Euro liquidity requirements in 
the event of a default. At a broad level, these tools include non-Euro 
cash deposited as collateral at creditworthy commercial banks; the sale 
of non-Euro securities of the defaulting member; repo transactions; the 
use of LCH SA's multicurrency overdraft facility; the use of FX spot 
market transactions; ECB weekly tender in U.S. dollars; and the 
replacement of LCH SA's liabilities in non-Euro by Euro. This 
description would be the same as what is currently found in Appendix 5 
of the Framework.\10\
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    \10\ The Proposed Rule Change would not amend this description 
as currently found in Appendix 5.
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    The Proposed Rule Change next would make two changes in Section 
1.6.1.1, titled Collateral transfer to the 3G pool, which is related to 
non-cash collateral posted by Clearing Members. LCH SA permits Clearing 
Members to deposit non-cash collateral either through a FTTA or through 
a SPA. LCH SA maintains FTTAs at various central securities 
depositories and maintains SPAs at Euroclear Bank and Bank of New York 
Mellon (for U.S. Treasuries). As currently described in Section 
1.6.1.1, LCH SA can pledge certain of this non-cash collateral--mostly 
Euro-denominated securities, referred to herein as ``Eligible 
Collateral''--at BdF to obtain a liquidity line on an intraday basis 
and overnight if needed. Securities denominated in other, non-Euro 
currencies are generally not considered Eligible Collateral under the 
Framework,\11\ and LCH SA can only pledge Eligible Collateral that is 
deposited through a FTTA. LCH SA cannot pledge securities that a 
Clearing Member deposits via a SPA, regardless of whether they are 
Eligible Collateral. Section 1.6.1.1 currently states that all non-cash 
collateral received is deposited via FTTA by LCH SA in various CSDs, 
except where collateral is deposited via SPA. The Proposed Rule Change 
would revise this description to clarify that Clearing Members can 
deposit either via FTTA or SPA, thus better reflecting Clearing 
Members' ability to choose between the two accounts. Second, the 
Proposed Rule Change would add a note to explain that there are limits 
to the amount of pledge collateral that can be deposited for LCH SA's 
RepoClear, EGC Plus, and EquityClear business lines, and a note to 
explain that Clearing Members deposit most of their collateral via 
FTTAs.
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    \11\ For example, the Framework notes that Gilts, US Treasuries, 
and securities denominated in Danish Krone, Norwegian Krone, Swedish 
Krona, Japanese Yen, Swiss Franc, Canadian Dollar, and Australian 
Dollar are not eligible for pledge at BdF.
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    Section 1.6.1.2, titled Assessment of Assets Liquidity, describes 
how LCH SA categorizes its collateral in terms of how liquid that 
collateral is. LCH SA assigns collateral to a liquidity tiering scale, 
ranging from 1 to 3. Tier 1 assets are the most liquid and Tier 3 are 
the least liquid. Currently, Section 1.6.1.2 contains a table that 
lists out collateral by tier. This table includes, as Tier 1 assets, 
all Eligible Collateral, UK Gilts and US Treasury Bills, and Dutch and 
Belgian central bank guarantees (only for the defaulting member that 
posted the guarantee). The Proposed Rule Change would add to this 
table, as Tier 3 assets, non-cash collateral denominated in Danish 
Krone, Norwegian Krone, Swedish Krona, Japanese Yen, Swiss Franc, 
Canadian Dollar, and Australian Dollar. As noted, such collateral is 
not Eligible Collateral. The Proposed Rule Change also would note, 
elsewhere in Section 1.6.1.2, that Tier 1 Assets include Gilt US 
securities and the central bank guarantee of the defaulter if the 
member is based in the same country as the central bank providing the 
guarantee. This additional language would be consistent with what is 
currently found in the table regarding Tier 1 assets.
    Section 1.6.1.3, titled Synthesis, contains a table that 
synthesizes information about LCH SA's various liquidity sources. This 
table categorizes each source as cash, non-cash collateral from 
Clearing Members, collateral from investment activities, and other. In 
this table the Proposed Rule Change would replace references to CC&G 
with references to Euronext Clearing, to reflect the name change noted 
above. Currently, this table also explains that LCH SA retains the 
right of collateral re-hypothecation for all Eligible Collateral, but 
not for collateral deposited under the pledge regime and CDS. The 
Proposed Rule Change would remove the reference specific to CDS. 
Because pledge is now available at LCH SA's CDS service, the disclaimer 
for pledge also applies to CDS, and therefore the CDS business line 
does not need to be mentioned separately.
    In addition, the table currently notes that LCH SA has demonstrated 
an ability to raise Euro cash using non-Euro, non-cash collateral, 
based on exercises performed in 2017. The Proposed Rule Change would 
clarify that CaLM demonstrated in 2021 and 2022 the ability to raise 
Euro liquidity from non-Euro non-cash collateral in USD and GBP. The 
table currently notes that when valuing non-Euro non-cash collateral as 
a liquidity source, LCH SA applies an arbitrary buffer of ten percent 
as a haircut. The Proposed Rule Change also would revise the 
description of this buffer from ``arbitrary'' to ``conservative'' and 
would note it is applied to absorb market stress that may occur beyond 
the volatility already captured by the all-in haircut.
    Finally, the table currently identifies as a source of liquidity 
guarantee letters

[[Page 57470]]

from central banks, but only for Belgian and Dutch clearing members. 
The Proposed Rule Change would confirm that these guarantees can be 
considered for liquidity purposes only if the relevant Clearing Member 
posting them is in default, because only in this specific situation 
would LCH SA acquire full ownership of the guarantee provided by the 
central bank.
    Section 1.6.2, titled Liquidity Needs, describes LCH SA's liquidity 
needs. As noted, the Framework identifies three broad categories of 
liquidity needs: (i) those arising from LCH SA's business-as-usual 
operations; (ii) those arising from Clearing Members' defaults; and 
(iii) those arising from the default of LCH SA's interoperating CCP.
    Section 1.6.2.1, titled Liquidity needs arising from members' 
defaults, further identifies liquidity needs arising from Clearing 
Member defaults. These needs include, among others, settlement cash 
outflows and the value of Eligible Collateral pledged at BdF. With 
respect to settlement cash outflows, Section 1.6.2.1 provides that cash 
outflows are generated when LCH SA must step in on behalf of the 
defaulted member to post cash to non-defaulting member(s) and take in 
the underlying collateral. The Proposed Rule Change would revise this 
description, from ``underlying collateral'' to ``underlying 
securities.'' Section 1.6.2.1 specifies that LCH SA obtains liquidity 
based on the value of the Eligible Collateral that it pledges. Given 
that a Clearing Member's default likely would result in (or result 
from) stress market conditions, and given that such conditions could 
lower the value of Eligible Collateral, the Proposed Rule Change would 
specify that LCH SA would consider stress market conditions in 
determining the value of Eligible Collateral pledged.
    Finally, Section 1.6.2.2, titled Liquidity needs arising from 
interoperating CCPs' defaults, identifies the liquidity needs arising 
from the default of LCH SA's interoperating CCP. In Section 1.6.2.2, 
the Proposed Rule Change would replace references to CC&G with 
references to Euronext Clearing, consistent with the name change noted 
above.

(iii) Section 2 and Section 3

    Section 2, titled Limitations and Compensating Controls, and 
Section 3, titled Justification of Modelling Approach, describe certain 
limitations to, and justifications for, how LCH SA models its liquidity 
sources and needs. The Proposed Rule Change would not make any 
amendments to Sections 2 and 3.

(iv) Section 4 Changes to the Framework

    Section 4, titled Model Specification, explains how LCH SA models 
its liquidity sources and needs. Section 4 is organized according to 
LCH SA's three broad categories of liquidity needs: (i) those arising 
from LCH SA's business-as-usual operations; (ii) those arising from 
Clearing Members' defaults; and (iii) those arising from the default of 
LCH SA's interoperating CCP.
Operational Liquidity Needs
    Section 4.1, titled Operational Target, describes how LCH SA 
determines its liquidity needs arising from business-as-usual 
operations. LCH SA values its operational liquidity needs by 
determining the amount of its sources of liquidity from its operations 
and the amount of its requirements for liquidity from its operations. 
LCH SA then subtracts the total of its requirements from the total of 
its sources, to determine whether it has sufficient resources to meet 
its requirements. As described in Section 4.1.3, titled Model Outputs, 
LCH SA's CaLRM team generates reports daily to check that operational 
liquidity sources are sufficient to cover operational liquidity 
requirements.
    The Proposed Rule Change would first amend Section 4.1.2, titled 
Model Inputs and Variable Selection, to clarify that the repayment of 
excess cash as well as excess ECB eligible securities deposited to 
cover margin requirements are considered in the liquidity requirements 
of the Operational Target. Operational liquidity requirements currently 
include, among other items, repayment of excess cash collateral, which 
is cash that Clearing Members provided to meet their margin and default 
fund requirements, but that is no longer needed to meet such 
requirements. This could occur, for example, when a Clearing Member's 
margin and default fund requirements decrease due to a change in the 
Clearing Member's positions or risk associated with those positions, 
and Clearing Members request the return of such excess cash collateral. 
Like excess cash, Clearing Members may request the return of Eligible 
Collateral that is no longer needed to meet margin and default fund 
requirements. Because LCH SA considers Eligible Collateral as a 
potential source of liquidity, the return of Eligible Collateral 
represents a potential liquidity requirement for LCH SA. Accordingly, 
the Proposed Rule Change would note that the return of excess Eligible 
Collateral represents a potential liquidity requirement.
    The Proposed Rule Change also would update a related footnote, 
which explains that LCH SA excludes certain securities from its 
liquidity assets, and therefore, LCH SA does not consider these 
securities as potential excess Eligible Collateral. These include 
securities denominated in Danish Krone, Norwegian Krone, Swedish Krona, 
Japanese Yen, Swiss Franc, Canadian Dollar, and Australian Dollar. 
These securities are not Eligible Collateral because LCH SA is not able 
to pledge them for a liquidity line. Here the Proposed Rule Change 
would specify that Portuguese and Finnish government bonds posted via 
the triparty solution are excluded from the liquid assets because LCH 
SA cannot pledge these securities at BdF due to operational 
constraints.
    The Proposed Rule Change would next amend Section, 4.1.4, titled 
Mathematical Formula, Derivation and Algorithm, and Numerical 
Approximation. This section explains the mathematical formula LCH SA 
uses to confirm that its sources of operational liquidity are 
sufficient to meet its needs. As noted, LCH SA determines the total of 
its sources and the total of its operational liquidity requirements and 
then subtracts the total of its requirements from the total of its 
sources. LCH SA refers to the resulting figure as its ``Operational 
Target.'' The Proposed Rule Change would not alter this formula, but it 
would add language to note that, after subtracting operational 
liquidity requirements from liquidity resources, the remaining amount 
must always be greater than zero.
    The Proposed Rule Change would next amend Section 4.1.5, titled 
Model Assumptions, 4.1.5, which details how LCH SA determines the 
amounts of its operational liquidity resources and needs, and the 
period for which LCH SA seeks to maintain sufficient liquidity 
resources. Currently, LCH SA seeks to maintain sufficient liquidity 
sources for five days in stressed situations. The Proposed Rule Change 
would revise this time horizon to provide that liquidity resources must 
be sufficient to meet LCH SA's liquidity requirements for seven days in 
stressed situations. Additionally, details related to the management of 
the former horizon have been removed to state that the horizon is seven 
days and results will be displayed without any aggregation. LCH SA is 
making this change to ensure that the time horizon is the same for all 
business lines. Specifically, this change would make the time horizon 
for LCH SA's business lines consistent with the time horizon for its 
RepoClear business

[[Page 57471]]

line, which uses a seven-day period for considering the sufficiency of 
its liquidity sources.
    Section 4 contains descriptions of the various components of LCH 
SA's operational liquidity requirements, which the Framework calls 
``liquidity requirements drivers.'' One of these drivers is the 
potential requirement to repay excess collateral. As noted, excess cash 
collateral is a potential liquidity need because Clearing Members may 
request the return of such excess cash collateral. The Proposed Rule 
Change would add a description of the return of excess Eligible 
Collateral as a related liquidity need.\12\ The Proposed Rule Change 
also would update a reference to the period for which LCH SA seeks to 
maintain sufficient liquidity sources. As with the change described 
above, the Proposed Rule Change would extend this period from five to 
seven days. Specifically, the assumptions that the two largest 
individual Clearing Members will withdraw their excess on day one (T) 
and that the third and fourth largest Clearing Members will withdraw 
their excess on day two (T+1) will be revised to clarify that (a) the 
two Clearing Member Groups that have the largest amount of excess 
collateral will withdraw their excess on T, and (b) the third and 
fourth Clearing Member Groups that have the next largest amount of 
excess collateral will withdraw their excess on T+1. In each case, LCH 
SA would assume the remaining Clearing Members will withdraw their 
excess on the third day (T+2).
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    \12\ Similar to the change described above, the Proposed Rule 
Change also would specify that Portuguese and Finnish government 
bonds posted via the triparty solution are excluded from the liquid 
assets because LCH SA cannot pledge these securities at BdF due to 
operational constraints.
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    Another liquidity driver is the operational liquidity need created 
when Clearing Members switch cash collateral with non-cash collateral, 
or switch Eligible Collateral with other non-cash collateral. LCH SA 
currently considers the impact of such switches over five days. Under 
the Proposed Rule Change, LCH SA would consider the switches over seven 
days rather than five, consistent with the changes described above. To 
facilitate this change, the Proposed Rule Change would add two 
additional definitions for the amounts of such switches, corresponding 
to T+5 and T+6.
    This section also currently explains that with respect to switches 
from cash to Eligible Collateral, LCH SA assumes that it can pledge the 
Eligible Collateral within the same day. The Proposed Rule Change would 
clarify that, to confirm this assumption, in quarter 3 of 2022, the 
CaLM demonstrated the ability to transfer Eligible Collateral to BdF 
within 30 minutes. The Framework currently lists the countries for 
whose securities CaLM demonstrated this ability, in other words, the 
countries whose sovereign securities are Eligible Collateral. The 
Proposed Rule Change would remove this list from the Framework because 
it is subject to change and depends on the collateral that LCH SA 
itself accepts from Clearing Members. This section also notes that, 
with respect to the amount of equity lodged, LCH SA takes the maximum 
amount of switch observed (currently 100 million Euro) and that this 
assumption is very conservative because the amount of equities lodged 
over the past 3 years did not exceed 400,000 Euro. The Proposed Rule 
Change would keep this sentence but delete the reference to the actual 
amounts (100 million and 400,000 Euro) because, as LCH SA takes the 
maximum amount of switched observed, both figures are subject to 
change.
    Another liquidity driver is the need created when LCH SA must 
provide liquidity to facilitate settlement, including fails resulting 
from delays in posting securities by Clearing Members. Currently, LCH 
SA determines the amount of this liquidity need based on the historical 
amount of EOD securities carried overnight, using a two-year lookback 
period. LCH SA is also making changes that will clarify the specific 
amount that is calibrated will be determined using the maximum EOD 
securities carried overnight over the whole time series available, 
rather than just a two-year lookback period. The Proposed Rule Change 
would delete the reference to the two-year lookback period and instead 
note that the estimate is based on the entire time series that is 
available to LCH SA.
    Another liquidity driver is the need created when Clearing Members' 
stressed margin requirements decrease. If a Clearing Member's margin 
requirement goes down, then the Clearing Member may request the return 
of collateral that it provided to cover that requirement, and therefore 
a reduction in margin could generate a liquidity need for LCH SA. The 
Proposed Rule Change would modify the targeted estimated margin 
reduction of non-defaulting Clearing Members to be consistent with the 
changes described above. Specifically, the estimated margin reduction 
will be calculated over seven consecutive days rather than the current 
three days. To reflect this change, a detailed table and related 
clarifying footnotes that describe the margin reduction rate per day of 
the horizon period would be added to the Framework.
    The liquidity need generated by LCH SA paying variation margin to 
its interoperable CCP is also a driver of operational liquidity. As 
with the changes discussed above, the Proposed Rule Change would 
replace references to CC&G in this section with references to Euronext 
Clearing. The Proposed Rule Change also would clarify that LCH SA 
estimates the variation margin payment based on the Initial Margin 
posted at LCH SA to cover a 5-day holding period to be spread out over 
a 5-day period according to a simulated market stress based on 
historical yield shifts.
    Finally, the Proposed Rule Change would make a minor amendment to 
Section 4.1.5.i, titled Model assumptions, Planned Default Fund (DF) 
reductions, which discusses how a decrease in the default fund would 
affect LCH SA's operational liquidity needs. The Proposed Rule Change 
would clarify that default fund is abbreviated as ``DF'' in the 
discussion accompanying Section 4.1.5.i.
Default Liquidity Needs
    Section 4.2 of the Framework, titled LCR, describes how LCH SA 
determines its liquidity needs arising from the default of a Clearing 
Member. As described, LCH SA must ensure that it has enough liquidity 
to satisfy a ``Cover 2'' requirement, meaning default of the two 
largest Clearing Member Groups at the same time.
    This section details the sources of liquidity and needs for 
liquidity that would arise in the event of a Clearing Member's default. 
The Framework refers to these liquidity sources as ``Total Available 
Assets'' and liquidity needs as ``Total Default Liabilities.'' To 
determine how well it is covering its liquidity needs arising from the 
potential default of a Clearing Member, LCH SA divides its Total 
Available Assets by its Total Default Liabilities. LCH SA refers to the 
resulting figure as its ``Liquidity Coverage Ratio'' or ``LCR.'' LCH SA 
calculates, monitors, and reviews the LCR daily.
    The Proposed Rule Change would revise this section to provide that 
the purpose of the LCR Cover 2 scenario is to allow LCH SA to ensure 
that it has enough liquidity in the case of default of the two largest 
Clearing Member Groups during the seven days following the default, 
rather than five days, as is currently provided. This change would be 
consistent with the other changes noted above, extending the time 
horizon for maintaining liquidity resources from five to seven days.

[[Page 57472]]

Model Inputs and Variable Selection
    With respect to the components that make up the LCR, Section 4.2.2, 
titled Model Inputs and Variable Selection, identifies four categories 
of Total Available Assets: (i) margin collateral; (ii) cash in the 
default fund; (iii) Eligible Collateral that LCH SA has pledged; and 
(iv) liquidity raised from investment activities. With respect to Total 
Default Liabilities, Section 4.2.2 identifies four categories: (i) the 
operational liquidity needs discussed above, which will continue during 
the default of a Clearing Member; (ii) contractual settlements related 
to LCH SA's RepoClear, EGCPlus, and EquityClear business lines; (iii) 
the cost of financing those contractual settlements; and (iv) variation 
margin paid to non-defaulting Clearing Members.
    The Proposed Rule Change would add to Section 4.2.2 language 
regarding the treatment of assets belonging to clients of FCM/BD 
Clearing Members. As reflected currently in the Framework, LCH SA 
segregates margin provided by FCM/BD Clearing Members on behalf of 
their clients. This means that LCH SA can only use a particular 
Clearing Member's client's margin to cover a shortfall arising from 
that particular client's default, and not to cover a shortfall arising 
from a Clearing Member's default or another client's default. The 
Proposed Rule Change would add language to further clarify LCH SA's 
treatment of margin provided by FCM/BD Clearing Members on behalf of 
their clients. This new language would specify that, in the context of 
default and monitoring of the LCR, LCH SA treats a specific FCM/BD 
Clearing Member's client's collateral as an available liquidity 
resource only if the specific client defaults and generates a liquidity 
need. Otherwise, LCH SA does not treat a specific FCM/BD client's 
resources as available liquidity assets for any other FCM/BD client, 
the client's FCM/BD Clearing Member, or any other Clearing Member.
    The Proposed Rule Change also would make an amendment regarding LCH 
SA's Total Available Assets. As noted above, the Framework identifies 
four categories of Total Available Assets. The Proposed Rule Change 
would amend the description of the third category, Eligible Collateral 
pledged at BdF. Currently, Section 4.2.2 describes this as the amount 
of liquidity that can be provided by BdF when pledging securities and 
including the haircut effect on the resulting figures. The Proposed 
Rule Change would revise this description to explain that LCH SA would 
be pledging the securities at stressed market prices.\13\ As noted 
above, LCH SA may pledge Eligible Collateral to obtain a liquidity 
line. LCH SA therefore treats this Eligible Collateral as a source of 
liquidity, the amount of which is based on the value of the collateral 
at the time of the pledge, minus an applicable haircut. The Proposed 
Rule Change would therefore amend the Framework to ensure that LCH SA 
considers the potential stress market conditions (which could decrease 
the value of the collateral), as well as the applicable haircut, when 
valuing Eligible Collateral as part of its liquidity resources.
---------------------------------------------------------------------------

    \13\ The proposed rule change would make the same change to 
Section 4.2.4, which describes the mathematical formula that LCH SA 
uses to calculate its total available assets. The proposed rule 
change also would make a similar change to Appendix 4, which 
presents a synthesis of LCH SA's liquidity reports. Here the 
proposed rule change would note that LCH SA would consider stressed 
market prices and the haircut when pledging securities.
---------------------------------------------------------------------------

    The Proposed Rule Change would make an amendment regarding LCH SA's 
Total Default Liabilities. As noted above, the Framework identifies 
four categories of Total Default Liabilities. The Proposed Rule Change 
would amend the description of the fourth category, the cost of paying 
variation margin to non-defaulting Clearing Members. The Framework 
currently describes this liability as the stressed variation margin 
impact for cash, derivatives, and CDS markets, on top of which is added 
the market stress risk impact on the contractual settlements for 
RepoClear. The Proposed Rule Change would describe this instead as the 
stressed variation margin impact for cash, derivatives, RepoClear, EGC, 
and CDS markets and would delete the phrase ``on top of which is added 
the market stress risk impact on the contractual settlements for 
RepoClear.'' Thus, under the Proposed Rule Change, LCH SA would 
consider as a liability the general stressed variation margin impact 
for RepoClear but not include the specific market stress risk impact on 
the contractual settlements for RepoClear. LCH SA is excluding this 
component because it will instead treat the market stress risk impact 
as a decrease in the value of liquidity obtained from pledging Eligible 
Collateral at BdF. As noted above, under the Proposed Rule Change, LCH 
SA would use stressed market prices to determine the amount of 
liquidity that it could obtain from pledging Eligible Collateral at BdF
Mathematical Formula Derivation and Algorithm and Numerical 
Approximation
    The Proposed Rule Change next would amend Section 4.2.4, titled 
Mathematical Formula Derivation and Algorithm and Numerical 
Approximation, which describes the mathematical formula that LCH SA 
uses to calculate its LCR. The Proposed Rule Change would make 
conforming revisions to the description of the mathematical formula in 
Section 4.2.4 to carry through the changes from elsewhere in the 
Framework described herein. For example, the description of the 
mathematical formula would be revised to clarify that securities 
pledged at the BdF and included among Total Available Assets will be 
valued at stressed market prices and will include the ECB haircut 
effect on the resulting figures, to incorporate the revisions discussed 
above in Section 4.2.2. Similarly, the Proposed Rule Change would 
revise the description of the mathematical formula in Section 4.2.4 to 
incorporate the clarification of LCH SA's treatment of margins provided 
by FCM/BD Clearing Members on behalf of their clients discussed above. 
Specifically, the description of the mathematical formula would be 
revised to clarify that, in the event of default by a specific FCM/BD 
Clearing Member's client (and for the purpose of LCR monitoring), LCH 
SA would treat that FCM/BD Clearing Member's client's collateral as 
available liquidity resources only if that specific FCM/BD client 
defaults and generates a liquidity need. Consistent with the changes 
discussed above, the description would also be revised to clarify that 
LCH SA would not consider these resources as available liquidity assets 
for any other FCM/BD clients, the FCM/BD Clearing Member, or any other 
Clearing Member.
Model Assumptions
    Section 4.2.5, titled Model Assumptions, describes the various 
risks and assumptions that LCH SA considers when calculating the LCR. 
Section 4.2.5 describes these assumptions per LCH SA business line, 
beginning with LCH SA's RepoClear business. To clarify that LCH SA must 
consider certain risks for each business line in determining liquidity 
requirements, the Proposed Rule Change would change the title of 
section 4.2.5.1 to ``Description of risks per Business Line.''
RepoClear
    Section 4.2.5.1.1, titled RepoClear, describes the liquidity needs 
associated

[[Page 57473]]

with RepoClear. Section 4.2.5.1.1 currently includes a table 
summarizing the liquidity requirements according to the direction of 
the repo transactions. The Proposed Rule Change would delete this 
summary table and a related paragraph describing the specific treatment 
of forward starting repo in the calculation of the settlement 
obligation outflows. The Framework would replace the table with new 
Sections 4.2.5.1.1.1 and 4.2.4.1.1.2 (discussed below).
    Also in Section 4.2.5.1.1, the Proposed Rule Change would amend the 
period for which LCH SA considers the cash needs associated with 
purchasing securities on behalf of a defaulting RepoClear clearing 
member. Currently, LCH SA calculates this liquidity need, which the 
Framework calls ``settlement cash outflows,'' over a five-day time 
horizon. The Proposed Rule Change would extend this to seven days, 
consistent with the changes discussed above. This change also would 
align this monitoring period to the RepoClear new maximum holding 
period to manage a default (five days holding period of margin plus two 
days of settlement convention).
    The Proposed Rule Change also would amend Section 4.2.5.1.1 to 
clarify that LCH SA will not offset the liquidity needs arising from 
the defaults of related Clearing Members. As noted above, LCH SA's 
Clearing Members may be part of an affiliated Clearing Member Group. As 
described in Section 4.2.5.1.1, LCH SA calculates these settlement 
outflows on a gross basis for each Clearing Member. For those Clearing 
Members that are part of a Clearing Member Group, LCH SA aggregates the 
gross outflows for each Clearing Member in that group. To facilitate 
the prohibition of netting between entities of the same group, the 
Proposed Rule Change would clarify that settlement cash outflows will 
be calculated over a period of 7 days and on a gross basis, aggregated 
by ISIN, settlement date, and Clearing Member level. LCH SA would then 
aggregate the final settlement outflows at the Clearing Member Group 
level without allowing any netting across members of the same Clearing 
Member Group.
    The Proposed Rule Change would add a new Section 4.2.5.1.1.1, 
titled Liabilities Contractual Obligations on Physical Delivery. This 
section would describe how LCH SA would estimate the liquidity needs 
associated with the physical settlement of transactions on behalf of a 
defaulting Clearing Member. In the case of default, LCH SA will assume 
and honor the obligations of the defaulted Members. In the event of 
securities with physical settlement, LCH SA might need to source 
securities to complete a defaulting Clearing Member's transaction, 
which could represent a substantial liquidity need for LCH SA. This 
section would describe the way LCH SA would navigate this scenario, and 
would describe how LCH SA's pledge of Eligible Collateral to obtain 
liquidity would affect its ability to source securities to settle 
transactions.
    The Proposed Rule Change also would add a new Section 4.2.5.1.1.2, 
titled Assets: Settlement Securities Pledged at Central Bank. This new 
section would describe how LCH SA would estimate the value of liquidity 
it could raise through pledging settlement securities withdrawn from 
the settlement system on behalf of a defaulting Clearing Member. This 
new section would describe in detail how LCH SA would determine the 
value of the liquidity it could raise, including the relevant 
mathematical formulas and assumptions. As would be described, LCH SA 
would consider the potential reduction in market price of the 
securities during unfavorable market conditions. In other words, LCH SA 
would consider the stressed market prices of the securities, in line 
with similar changes described above. LCH SA would also consider the 
haircut that BdF would apply when lending cash to LCH SA in exchange 
for the securities. Finally, to remain consistent with the calculation 
of settlement obligations, as described in this section, after 
calculating the Liquidity retrieved from the BdF for all dates in the 
LCR period at Member level, the amounts are aggregated at the Clearing 
Member Group level.
    The Proposed Rule Change would revise Section 4.2.5.1.1.3 
(renumbered from 4.2.5.1.1.1), titled Market Risk. This section 
describes the liquidity need generated by the requirement that LCH SA 
pay variation margin to non-defaulting Clearing Members on behalf of 
the defaulting Clearing Member. The Proposed Rule Change would clarify 
that, in addition to the liquidity flows driven by settlement 
obligations, the position of the defaulter may generate a liquidity 
drain for LCH SA in the form of negative mark-to-market to be paid to 
non-defaulting members. The Proposed Rule Change also would revise the 
formula that LCH SA uses to estimate the value of this liquidity need. 
Under the Proposed Rule Change, LCH SA would consider the worst stress 
loss of the defaulter position according to the relevant RepoClear 
stress test scenario and add additional margin to model any 
concentration or market liquidity issues. The Proposed Rule Change 
further would add a footnote to explain that Appendix 6.7 to the 
Framework contains a list of stress scenarios.
EGCPlus
    Dection 4.2.5.1.2, titled EGCPlus, describes the liquidity needs 
arising from EGCPlus. These liquidity needs could arise from the 
securities purchased on behalf of a defaulting Clearing Member. LCH SA 
aggregates these needs by ISIN of the securities and maturity of the 
contracts. The Proposed Rule Change would revise this section to 
clarify that, when calculating the settlement-driven cash outflows, the 
aggregation is based on data provided by the triparty agent and that a 
liquidity need is generated only by positions in which the defaulter is 
a cash borrower in the first leg of the repo and the collateral taker 
when the repo closes. The Proposed Rule Change would further add a 
footnote that would explain which positions generate a liquidity upon a 
default. Specifically, a liquidity need is generated by those positions 
in which the defaulting Clearing Member is a cash borrower (collateral 
giver) in the first leg of the repo and, therefore, the collateral 
taker when the repo closes.
    To incorporate a recommendation from LCH SA's Model Validation Team 
to improve the liquidity needs estimation related to Market Risk in the 
LCR, the Proposed Rule Change also would clarify that, for EGCPlus, the 
additional liquidity needs generated by negative mark to market 
payments to non-defaulting Clearing Members is estimated in line with 
what is done for RepoClear. As noted above, this means LCH SA would 
consider the worst stress loss of the defaulter position according to 
the relevant stress test scenario and add any additional margin to 
model any concentration or market liquidity issues.
EquityClear
    Section 4.2.5.1.3, titled EquityClear, describes the liquidity 
needs arising from EquityClear. In this section, the Proposed Rule 
Change would incorporate amendments made elsewhere to the Framework. 
For example, the Proposed Rule Change would update Section 4.2.5.1.3 to 
clarify that the settlement cash outflows will be calculated on a gross 
basis at the Clearing Member level and then aggregated at the Clearing 
Member Group level without allowing any netting across the Clearing 
Members of the same Clearing Member Group. Doing so would help to 
ensure that there is no netting across Clearing Members in the same 
Group, the same as the amendments discussed above. Further,

[[Page 57474]]

when determining the liquidity need generated by the requirement that 
LCH SA pay variation margin to non-defaulting Clearing Members on 
behalf of the defaulting Clearing Member, under the Proposed Rule 
Change LCH SA would consider the worst stress loss of the defaulter 
position according to the relevant stress test scenario.
    To address a recommendation from LCH SA's Model Validation Team, 
the Proposed Rule Change would add the liquidity needs related to the 
expiry of physically delivered single stock futures in the LCR. Where 
the defaulting Clearing Member holds a long futures position which 
expires during the LCR horizon, LCH SA will have to pay the future 
price to the non-defaulting counterparty in order to settle the 
physical underlying. Therefore, LCH SA would consider this as a 
potential additional liquidity need.
Listed Derivatives
    Section 4.2.5.1.3.2, titled Listed Derivatives, describes the 
liquidity needs arising from LCH SA's listed derivatives business line. 
Here the Proposed Rule Change would clarify that futures on equity 
index contracts are included among the listed derivatives instruments 
considered in the calculation of the LCR and that derivatives 
expirations occur on a monthly basis rather than the previously stated 
quarterly basis. Moreover, when determining the liquidity need 
generated by the requirement that LCH SA pay variation margin to non-
defaulting Clearing Members on behalf of the defaulting Clearing 
Member, under the Proposed Rule Change LCH SA would consider the worst 
stress loss of the defaulter position according to the relevant stress 
test scenario, consistent with changes elsewhere in the Framework.
CDSClear
    Section 4.2.5.1.4, titled Credit Default Swaps, describes the 
liquidity needs arising from LCH SA's CDSClear business line. Here the 
Proposed Rule Change would clarify that the calculation of the 
liquidity needs generated by negative mark-to-market payments to be 
made to non-defaulting members is charged in line with what is done for 
the other LCH SA services. Specifically, LCH SA will calculate this 
need as the worst stress loss of the defaulter position according to 
the relevant stress test scenario. The Proposed Rule Change further 
would add a footnote to explain that Appendix 6.7 to the Framework 
contains a list of stress scenarios.
Additional Components of LCR, Section 4.2.5.2
    Section 4.2.5.2 of the Framework, titled Other Liquidity 
Requirements, describes certain other components that LCH SA considers 
as part of the LCR.
    For example, LCH SA includes the liquidity requirement arising from 
the operational target as a liquidity need in calculating the LCR. LCH 
SA does so with two modifications. First, LCH SA removes the cost of 
paying variation margin to its interoperable CCP. LCH SA makes this 
modification because it assumes that where its two largest Clearing 
Member Groups have defaulted, LCH SA would be collecting variation 
margin from its interoperable CCP rather than paying out variation 
margin. Second, LCH SA removes the impact of a margin reduction for 
defaulting Clearing Members. As discussed above, LCH SA considers the 
liquidity need created when Clearing Members' margin requirements 
decrease. If a Clearing Member's margin requirement goes down, then the 
Clearing Member may request the return of collateral that it provided 
to cover that requirement, and therefore a reduction in margin 
generates a liquidity need for LCH SA. The same is true when a Clearing 
Member requests the return of excess cash collateral. For the sake of 
accounting for the operational target in the LCR, LCH SA excludes this 
component with respect to the two Clearing Member Groups that are 
assumed to be in default. LCH SA does this because, where a Clearing 
Member is in default, LCH SA has the right to use the collateral of the 
defaulting Clearing Member, including any excess collateral. LCH SA is 
already reducing the impact of these two components of the operational 
target in the current version of the Framework, and the Proposed Rule 
Change would make clarifying edits to the description of these 
components.
    LCH SA includes margin collateral in its available assets when 
calculating the LCR. LCH SA does this because, as discussed, LCH SA can 
obtain liquidity for margin collateral, by pledging Eligible Collateral 
and otherwise engaging in investment transactions. In doing so, LCH SA 
considers potential losses to the market value of non-cash collateral 
because such losses could decrease the amount of liquidity that LCH SA 
is able to obtain. The Proposed Rule Change would clarify that LCH SA 
would consider these potential losses by applying the same set of 
stress scenarios used by LCH SA in the calibration of the default fund 
for its RepoClear service, and choosing the one that generates the 
biggest liquidity exposure in terms of Cover 2.
    As part of the LCR, LCH SA also considers potential losses related 
to investment activities involving a defaulting Clearing Member's non-
cash collateral. LCH SA does so because it may use the proceeds of its 
investment activities as a liquidity resource when a Clearing Member 
defaults, and losses would decrease the amount of these proceeds. The 
Proposed Rule Change would clarify that LCH SA would consider these 
potential losses by applying the same set of stress scenarios used by 
LCH SA in the calibration of the default fund for its RepoClear 
service, and choosing the one that generates the biggest liquidity 
exposure in terms of Cover 2.
    The Proposed Rule Change would add a new Section 4.2.5.2.4, titled 
Collateral Pledge modelling. This new section would describe, in 
detail, how pledged collateral is modelled when calculating the LCR. As 
noted, LCH SA may pledge Eligible Collateral deposited via FTTA to 
obtain a liquidity line, but not collateral deposited via SPA. If 
Clearing Members switch from depositing Eligible Collateral via FTTA to 
SPA, that could reduce the amount of liquidity that LCH SA is able to 
obtain. To account for this, LCH SA would assume that Clearing Members 
with an active SPA would pledge collateral near the maximum allowed on 
each LCH SA business line. LCH SA would therefore subtract this amount 
of Eligible Collateral from its liquidity resources. LCH SA will 
calculate the expected additional pledge as the difference between the 
maximum pledge allowed on the business line scaled by a parameter to 
capture Clearing Member's expected use of pledge and the actual pledge 
used by Clearing Members. Currently, LCH SA would assume that each 
Clearing Member with an active SPA would pledge 100% of the securities 
that it is allowed to pledge.
    For Clearing Members without an active SPA, LCH SA would include 
all Eligible Collateral deposited via FTTA in its liquidity resources. 
As noted, certain securities, like those denominated in Danish Krone, 
Norwegian Krone, Swedish Krona, Japanese Yen, Swiss Franc, Canadian 
Dollar, and Australian Dollar are not considered Eligible Collateral. 
LCH SA would therefore exclude these securities from its liquidity 
resources. The Proposed Rule Change would add a notation to that effect 
in Section 4.2.5.2.4.

[[Page 57475]]

Market Risk Stress Scenario Selection, Section 4.2.5.3
    Section 4.2.5.3, titled Stress scenario selection, describes the 
scenarios that LCH SA uses to factor the effect on market values that 
could occur in a stressed environment, including a Cover 2 default. 
Such a situation could, for example, lead to a decrease in the value of 
the defaulting Clearing Members' non-cash collateral and/or require 
that LCH SA pay variation margin on behalf of the defaulting Clearing 
Members. Thus, such a scenario would impact LCH SA's liquidity, both in 
terms of the amount of liquidity it is able to obtain from non-cash 
collateral, and the amount of liquidity it may need to pay out in the 
form of variation margin.
    As described, LCH SA uses separate scenarios for each of its 
clearing services, taken from the set of scenarios used to calibrate 
the amount of Default Fund for the different services. The Proposed 
Rule Change would clarify that the stress test scenarios selected for 
each LCH SA service would be consistent with a market state resulting 
from Cover 2 default as assumed by the LCR. Moreover, the Proposed Rule 
Change would update the list of scenarios to include only those most 
relevant given the LCR assumptions.
    Section 4.2.5.3 also contains a table describing the haircuts that 
would be applied when LCH SA pledges Eligible Collateral. These 
haircuts reduce the value of collateral that LCH SA can pledge, and 
therefore ultimately reduce the amount of liquidity that LCH SA is able 
to obtain. The Proposed Rule Change would update this table to reflect 
the current haircuts.
Cover 2 Selection, Section 4.2.5.4
    Section 4.2.5.4, titled Cover 2 selection, describes how LCH SA 
calculates the liquidity requirements for each Clearing Member in a 
stressed environment, which it then uses to determine its Cover 2 
requirement by Clearing Member Group (i.e., the two largest liquidity 
exposures).
    The Proposed Rule Change will revise this section to specify that 
LCH SA will determine its Cover 2 requirement in the following manner: 
LCH SA will first calculate certain liquidity requirements for each 
individual Clearing Member and then aggregate these amounts per each 
Clearing Member Group, to arrive at a total requirement for each 
Clearing Member Group. The Cover 2 requirement would be the two largest 
amounts per Clearing Member Group.
    As would be described in revised Section 4.2.5.4, LCH SA first 
would calculate the following requirements for each Clearing Member, 
before determining the aggregate liquidity requirement per Clearing 
Member Group:
     Stress Variation Margin--for all the services, these 
variation margins would be modelled by applying the most punitive 
scenario among the chosen sets and consistent with the LCR assumptions;
     Settlement liquidity requirements due to RepoClear and 
Cash equity settlement obligations--LCH SA would value securities 
pledged according to the scenario that would generate the highest loss;
     Non-cash Collateral stress losses--LCH SA would estimate 
these losses by stressing the Eligible Collateral with the set of 
scenarios consistent with the LCR assumptions;
     Investment stress losses over haircut--LCH SA would 
estimate these losses by applying the stress scenarios to the 
collateral received from the reverse repo activity with each specific 
counterparty; and
     ECB Haircut--LCH SA would determine the impact by applying 
the relevant haircut to all the Eligible Collateral received from a 
specific clearing member.
    LCH SA would use the scenarios relevant to each of its clearing 
services to determine these requirements and then select the scenario 
that generates the maximum loss of the sum of all of the above elements 
for the two most exposed Clearing Member Groups. As noted, this sum 
would determine LCH SA's Cover 2 requirement for purposes of 
determining its LCR.
LCR for Euronext
    Section 4.3 of the Framework, titled LCR Euronext Clearing, 
describes how LCH SA calculates the liquidity impact resulting from the 
potential default of its interoperable CCP. Throughout this section, 
the Proposed Rule Change would change the name of the interoperable CCP 
from CC&G to Euronext Clearing, including in the titke. The Proposed 
Rule Change also would update the time horizon for which LCH SA would 
consider this potential liquidity impact from five to seven days. These 
changes would be consistent with the changes made in other sections of 
the Framework, as described above.

(v) Section 5 Changes to the Framework

    Section 5 of the Framework, titled Model Performance Testing and 
Ongoing Monitoring, describes how LCH SA monitors and tests its 
liquidity sources and requirements. Section 5.1, titled Ongoing 
Monitoring, describes the metrics that LCH SA calculates each day, 
notes the formula used to determine each metric, how LCH SA reports 
that metric, the limit associated with the metric, and what action LCH 
SA would take if the limit is breached. For example, Section 5.1 
describes how LCH SA calculates its LCR, how LCH SA reports the LCR 
daily, and the amount of LCR that would trigger an alert and further 
actions. Throughout Section 5.1, the Proposed Rule Change would update 
references to the length of time for which LCH SA must maintain 
liquidity resources from five to seven days and change the name of LCH 
SA's interoperable CCP to Euronext Clearing, consistent with changes 
elsewhere in the Framework.
    Section 5.1 also describes how LCH SA monitors the allocation 
between cash and non-cash collateral and specifies that cash collateral 
should represent at least 25% of LCH SA's available liquid resources 
after the default of its most significant Clearing Member. The Proposed 
Rule Change would revise this to state that cash collateral and non-
cash collateral that is eligible to be pledged at BdF (meaning Eligible 
Collateral) should represent at least 25% of LCH SA's available liquid 
resources after the default of its most significant Clearing Member. 
LCH SA is making this change in recognition that it can pledge Eligible 
Collateral for liquidity and further to conform the Framework with LCH 
SA's Liquidity Policy.
    The Proposed Rule Change next would amend Section 5.3, titled 
Reverse Stress Test, which describes the reverse stress tests that LCH 
SA performs. LCH SA performs these reverse stress tests using extreme 
market conditions that go beyond what are considered plausible. As 
described in the introduction to Section 5.3, LCH SA uses these extreme 
market conditions to satisfy certain requirements of applicable law. 
The Proposed Rule Change would add to the discussion of applicable law 
a summary of Commission Rules 17Ad-22(e)(7)(vi)(B) and (C).\14\ 
Throughout Section 5.3 the Proposed Rule Change also would update 
references to the length of time for which LCH SA must maintain 
liquidity resources from five to seven days and change the name of LCH 
SA's interoperable CCP to Euronext clearing, consistent with changes 
elsewhere in the Framework.
---------------------------------------------------------------------------

    \14\ 17 CFR 240.17Ad-22(e)(7)(vi)(B) and (C).
---------------------------------------------------------------------------

    As described in Section 5.3, LCH SA conducts its reverse stress 
tests using two approaches. First, LCH SA conducts reverse stress tests 
using seven separate risk factors, with one single factor

[[Page 57476]]

stressed at a time. The Framework refers to these tests as ``single 
factor reverse stress tests'' or ``core reverse stress tests.'' Second, 
LCH SA tests the same risk factors together, under two different 
overall combinations of risk factors, which the Framework refers to as 
``combined scenarios.'' One combined scenario aims to stress the 
structure of LCH SA's liquidity resources while the other combined 
scenario aims to simulate the effect of a macro-economic shock on LCH 
SA's liquidity resources.
    Section 5.3.1, titled Independent stress of various risk factors, 
describes each of the seven risk factors, and the Proposed Rule Change 
would make various updates to this description. For example, the first 
risk factor considers the effect on LCH SA's liquid resources arising 
from a reduction in margin requirements. The description of this risk 
factor currently notes that a primary source of liquidity is from 
investment management by LCH SA's CaLM team. The Proposed Rule Change 
would revise this to note that a primary source of liquidity is from 
investment management performed by LCH SA's CaLM team. The Proposed 
Rule Change also would add an explanation that another primary source 
of liquidity for LCH SA is non-cash collateral that LCH SA can pledge 
to obtain liquidity.
    The second risk factor considers the effect on LCH SA's liquidity 
resources arising from Clearing Members replacing Eligible Collateral 
that LCH SA can pledge for liquidity at BdF with collateral that LCH SA 
cannot pledge. The current Framework describes the collateral that LCH 
SA cannot pledge as, among others, U.K. or U.S. bonds, equities, and 
other non-Euro non-cash collateral. The Proposed Rule Change would add 
to this list pledge collateral, meaning collateral deposited in a SPA. 
As discussed above, LCH SA cannot use collateral deposited via SPA to 
obtain liquidity at BdF, even if that collateral is Eligible 
Collateral.
    The third risk factor considers the impact from a downgrade in the 
rating of countries in the Eurozone. Such a downgrade could increase 
the haircut applied to Eligible Collateral when LCH SA pledges it at 
BdF to obtain liquidity. Currently, the Framework describes this risk 
factor as a reverse stress test that aims at modelling the downgrade of 
the relevant countries and estimating the theoretical ECB haircuts 
generating a liquidity shortfall. The Proposed Rule Change would revise 
this description to modelling the downgrade of the relevant countries 
and estimating the theoretical ECB haircuts needed to generate a 
liquidity shortfall.
    The Proposed Rule Change would not make any amendments to the 
description of the fourth and fifth risk factors, which consider the 
effects of the increase of the maturity of the securities from the 
settlement of repo transactions and the effects of the market-to-market 
drop of tier 1 assets.
    For the sixth risk factor, the Proposed Rule Change would revise 
the phrase ``the direction of the position'' to ``the direction of the 
positions.''
    The seventh risk factor considers how many defaults LCH SA can 
sustain before experiencing a shortfall in liquidity. Here the 
Framework currently includes the following question: given that 
liquidity requirements are sized to a Cover 2 standard, is it plausible 
that there are more than 2 members who could lead to a liquidity 
deficit? The Proposed Rule Change would revise the phrasing of this 
question to ``2 member Groups defaults'' instead of ``2 members.'' 
Further, the current Framework specifies that, to answer this question, 
LCH SA rank orders Clearing Member Groups based on their internal 
credit scores (``ICS''), starting from the ones with the worst ICS. The 
Proposed Rule Change would revise the wording of this sentence to state 
instead that to answer this question, LCH SA ranks Clearing Member 
Groups on their ICS and starts with the one with the worst ICS. 
Finally, the current Framework notes that, starting from the top of the 
list, LCH SA assesses how many defaults have to take place to generate 
a liquidity shortage. The Proposed Rule Change would revise this 
slightly to state that, starting from the top of the list and 
considering all member Group with ICS 6 or bigger, LCH SA assesses how 
many defaults have to take place to generate a liquidity shortage.
    Section 5.3.2, titled Combined reverse stress test scenarios, 
describes the combined reverse stress test scenarios. Section 5.3.2.1 
currently notes that LCH SA performs these additional combined reverse 
stress tests quarterly. The Proposed Rule Change would revise this 
language to at least quarterly.
    Section 5.3.2.2, titled Behavioural scenario, describes the 
combined scenario that stresses the structure of LCH SA's liquidity 
resources, including the individual risk factors that LCH SA combines 
to create this scenario. This section also describes the overall 
question that LCH SA seeks to answer with this reverse stress test, 
which is whether there is any combination of changes in the liquidity 
resources that could lead to a liquidity shortfall without any stress 
in the market. In addition to describing the risk factors tested and 
the overall aim of the scenario, Section 5.3.2.2 also provides an 
example of how LCH SA reports the results of the test. The Proposed 
Rule Change would update this example to reflect a new layout for the 
report.
    Section 5.3.2.3, titled Macro-economic scenario, describes the 
combined scenario that simulates the effect of a macro-economic shock 
on LCH SA's liquidity resources. This section describes how LCH SA 
combines the individual risk factors to create the overall scenario, as 
well as the overall question that LCH SA seeks to answer with this 
reverse stress test, which is how many multiple defaults LCH SA can 
sustain until it experiences a liquidity shortfall in a shocked macro-
economic environment. To simulate the shocked macro-economic 
environment, the Framework currently uses two macro-economic scenarios, 
which are described in Section 5.3.2.3. The Proposed Rule Change would 
remove these two scenarios and replace them with the same scenarios 
that it uses to determine its LCR.\15\ The Proposed Rule Change would 
update this section and references to the scenarios accordingly. 
Throughout this section, the Proposed Rule Change also would change 
references to Clearing Members to Clearing Member Groups to clarify 
that this scenario considers Clearing Member Groups, rather than 
individual members, consistent with the overall Cover 2 requirement. 
Finally, the Proposed Rule Change would update the examples of the 
reports that LCH SA uses to present the results of this scenario. The 
Proposed Rule Change would update the layout of these examples to match 
the current versions used by LCH SA.
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    \15\ As noted above, these scenarios are set out in Appendix 
6.7.
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    Section 5.3.3.3, titled Frequency and Reporting, would be a new 
section to describe how often LCH SA conducts testing, reviews the 
results, and reviews the underlying scenarios. As would be specified in 
Section 5.3.3.3, LCH SA would perform the core reverse stress tests 
monthly and the combined reverse stress test scenarios quarterly. 
Through its monthly core reverse stress tests, LCH SA would conduct a 
comprehensive analysis of the existing stress testing scenarios, 
models, and underlying parameters and assumptions used in evaluating 
liquidity needs and resources. In certain circumstances, LCH SA also 
would perform an ad hoc analysis of the existing stress testing 
scenarios, models, and underlying parameters and assumptions used in 
evaluating liquidity needs and resources. LCH SA would do so when

[[Page 57477]]

the products it clears or markets it serves display high volatility or 
become less liquid; when the size or concentration of its Clearing 
Members' positions held increase significantly; or in any other 
appropriate circumstances that would lead to a liquidity coverage ratio 
falling below LCH SA's alert threshold. In this last circumstance, the 
ad hoc analysis would be reported to the LCH SA CRO, the Head of the 
LCH SA Collateral and Liquidity Management division, and to the LCH SA 
Risk Committee. Finally, Section 5.3.3 would require that the results 
and findings of the reverse stress tests exercise be reported monthly 
to LCH SA CRO and quarterly to LCH SA Risk Committee.

(vi) Section 6 Changes to the Framework

    Section 6 of the Framework, titled Appendix, contains appendices to 
the main document. There are currently six appendices to the Framework. 
The Proposed Rule Change would revise Appendices two through five and 
add new Appendices seven and eight.
    Appendix two, titled Members behaviour analysis, describes how LCH 
SA models the behavior of Clearing Members during a period of market 
stress. This appendix considers behaviors that could affect LCH SA's 
liquidity resources, such as replacing cash collateral with non-cash 
collateral, withdrawing excess collateral, and reducing positions 
(which in turn could reduce margin and guaranty fund requirements and 
therefore the financial resources available to LCH SA). Throughout this 
section the Proposed Rule Change would change relevant time horizons 
from five to seven days, consistent with the changes to main body of 
the Framework discussed above.
    The Proposed Rule Change also would update the description of non-
cash collateral that LCH SA cannot pledge at the BdF to obtain a 
liquidity line of credit. Appendix two currently describes this 
collateral as mainly Gilts and Central Bank Guarantees. The Proposed 
Rule Change would expand this list to include U.S. Treasuries, as well 
as securities denominated in Danish Krone, Norwegian Krone, Swedish 
Krona, Japanese Yen, Swiss Franc, Canadian Dollar, and Australian 
Dollar, because LCH SA cannot pledge such securities at BdF. Appendix 
two also currently notes that, although LCH SA cannot pledge this 
collateral at BdF, the use of this collateral by Clearing Members would 
not be material to LCH SA's liquidity resources. This is because, as 
currently described in Appendix two, this collateral represents a small 
percentage of total collateral, and LCH SA expects to limit use of this 
collateral. The Proposed Rule Change would revise this description to 
note that LCH SA has imposed concentration limits on collateral that it 
cannot pledge at BdF, rather than LCH SA expecting to limit the use of 
such collateral.
    Appendix three, titled Reminder of SA's sources of liquidity and 
related risk drivers, is a table that describes, in summary form, LCH 
SA's sources of liquidity. For each source of liquidity, the table also 
describes risks that could affect the amount of liquidity that LCH SA 
can obtain for the source, as well as how LCH SA mitigates those risks. 
Here the Proposed Rule Change would change the name of LCH SA's 
interoperable CCP to Euronext. The Proposed Rule Change also would add 
an additional risk to one of LCH SA's liquidity sources. Currently the 
table lists non-cash collateral from Clearing Members as a source of 
liquidity because LCH SA may obtain liquidity with such collateral 
through investment transactions or by pledging Eligible Collateral at 
BdF. The Proposed Rule Change would note that a Clearing Member's 
ability to pledge non-cash collateral using a SPA is a risk to this 
liquidity source. This is a risk because LCH SA cannot use collateral 
deposited via a SPA to obtain liquidity, even if that collateral is 
Eligible Collateral.
    Appendix four, titled Liquidity risk drivers synthesis by reports, 
is a table that describes, in summary form, LCH SA's liquidity needs. 
This table presents the liquidity needs according to three broad 
categories: (i) operational target (needs arising from LCH SA's 
business-as-usual operations); (ii) LCR (needs arising from Clearing 
Members' defaults); and (iii) Euronext LCR (needs arising from 
interoperating CCP's defaults). Here the Proposed Rule Change would 
change the name of LCH SA's interoperable CCP to Euronext and change 
the time horizon from five to seven days.
    Appendix five, titled Liquidity risk monitoring reports, shows 
examples of the reports that LCH SA uses to monitor its liquidity. The 
Proposed Rule Change would update the layout of these examples to match 
the current versions used by LCH SA.
    As noted, the Proposed Rule Change would add a new Appendix seven, 
which would be titled Stress scenarios list. It would contain a list of 
stress scenarios that LCH SA uses for each of its clearing services.
    The Proposed Rule Change also would add a new Appendix eight, which 
would be titled Pseudo-code of settlement and market risk calculation. 
Appendix eight would explain the algorithm that LCH SA uses to 
calculate the settlement obligation driven liquidity requirements in 
the monitoring of the LCR and the resulting BdF liquidity raised by 
pledging the securities withdrawn from the settlement systems. This 
appendix would present the algorithm in pseudo-code format, meaning the 
appendix would show how the algorithm would look when programmed into a 
computer for calculation. This same algorithm would also be described 
in Section 4.2.5.1.1.1 and Section 4.2.5.1.1.2 of the Framework.

III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act requires the Commission to approve a 
proposed rule change of a self-regulatory organization if it finds that 
the proposed rule change is consistent with the requirements of the Act 
and the rules and regulations thereunder applicable to the 
organization.\16\ For the reasons given below, the Commission finds 
that the Proposed Rule Change is consistent with Section 17A(b)(3)(F) 
of the Act,\17\ Rule 17Ad-22(e)(7) thereunder,\18\ and Rules 17Ad-
22(e)(7)(vi)(B) and (C) \19\ thereunder.
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    \16\ 15 U.S.C. 78s(b)(2)(C).
    \17\ 15 U.S.C. 78q-1(b)(3)(F).
    \18\ 17 CFR 240.17Ad-22(e)(7).
    \19\ 17 CFR 240.17Ad-22(e)(7)(vi)(B) and (C).
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A. Consistency With Section 17A(b)(3)(F) of the Act

    Under Section 17A(b)(3)(F) of the Act, LCH SA's rules, among other 
things, must be ``designed to promote the prompt and accurate clearance 
and settlement of . . . derivative agreements, contracts, and 
transactions . . . .'' \20\ Based on its review of the record, and for 
the reasons discussed below, the Commission believes that the Proposed 
Rule Change is consistent with Section 17A(b)(3)(F) of the Act because 
it improves LCH SA's management of its liquidity risk.\21\
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    \20\ 15 U.S.C. 78q-1(b)(3)(F).
    \21\ 15 U.S.C. 78q-1(b)(3)(F).
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    LCH SA relies on the Framework to support its management of 
liquidity risk arising from a potential Clearing Member default, 
default of Euronext Clearing, and operational liquidity requirements. 
Managing such risks, such as through the maintenance of liquid 
resources sufficient to meet payment obligations, reduces the 
likelihood that LCH SA would fail to make payments when due, thereby 
avoiding disruptions to the settlement of transactions for which such 
payments are due. Thus, the Framework, as a rule of LCH SA, supports 
the prompt and

[[Page 57478]]

accurate clearance and settlement of the derivatives transactions LCH 
SA clears, including security-based swaps.
    Certain of the changes would update and clarify existing aspects of 
the Framework. These include the updates to overall scope, purpose, and 
use of the Framework in Section 1. Throughout the Framework, the 
Proposed Rule Change also would update the name of LCH SA's 
interoperable CCP to Euronext Clearing. These updates and 
clarifications contribute to the effectiveness of the Framework as a 
tool supporting LCH SA's management of liquidity risk arising from a 
potential member default, default of Euronext Clearing, and operational 
liquidity requirements, which facilitates prompt and accurate clearance 
and settlement.
    In addition to updating and clarifying the Framework, the Proposed 
Rule Change also would revise how LCH SA determines its liquidity 
sources and needs under the Framework. With respect to sources of 
liquidity, the Proposed Rule Change would require LCH SA to consider 
Clearing Members' ability to switch from depositing collateral using 
FTTAs to SPAs. Such switches could reduce the amount of liquidity that 
LCH SA is able to obtain when pledging Eligible Collateral at BdF 
because LCH SA cannot pledge any collateral deposited via SPAs. 
Similarly, the Proposed Rule Change would require LCH SA to consider 
stressed market prices when determining the amount of liquidity that it 
could obtain by pledging Eligible Collateral at BdF. The amount of 
liquidity that LCH SA could obtain is based on the value of the 
collateral at the time of the pledge, minus an applicable haircut, and 
potential stress market conditions could decrease the value of the 
collateral or increase the haircut.
    With respect to LCH SA's liquidity needs, the Proposed Rule Change 
would prevent netting between Clearing Members of the same group. 
Eliminating netting potentially could increase the liquidity needs 
generated among a group of related Clearing Members. The Proposed Rule 
Change also would extend to seven days (from five days) the time 
horizon for which LCH SA must maintain liquidity resources sufficient 
to meet its liquidity requirements. Doing so could potentially increase 
the amount of LCH SA's liquidity requirements. Finally, the Proposed 
Rule Change would require that LCH SA consider the liquidity 
requirements generated by the expiration of physically settled stock 
futures, adding another potential liquidity need to LCH SA's existing 
liquidity needs.
    These changes, taken together, would improve LCH SA's ability to 
determine the amount of its liquidity needs and the amount of its 
resources to satisfy those liquidity needs. More accurately determining 
the amount of LCH SA's liquidity needs and resources would thereby 
improve LCH SA's ability to control and quantify its liquidity risk. 
Control over and accurate measurement of liquidity risk is necessary to 
ensure that LCH SA's liquidity needs do not exceed its resources so 
that LCH SA can meet its payment obligations on time without disrupting 
settlement. Thus, the proposed changes to the Framework promote prompt 
and accurate clearance and settlement.
    The Commission finds, therefore, that the Proposed Rule Change is 
consistent with the requirements of Section 17A(b)(3)(F) of the 
Act.\22\
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    \22\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

B. Consistency With Rule 17Ad-22(e)(7) Under the Act

    Rule 17Ad-22(e)(7) requires LCH SA to establish, implement, 
maintain, and enforce written policies and procedures reasonably 
designed to effectively measure, monitor, and manage the liquidity risk 
that arises in or is borne by LCH SA, including measuring, monitoring, 
and managing its settlement and funding flows on an ongoing and timely 
basis, and its use of intraday liquidity.\23\ As noted above, LCH SA 
uses the Framework to measure, monitor, and manage its liquidity risk. 
The Proposed Rule Change would improve the Framework by more accurately 
determining the amount of LCH SA's liquidity needs and resources. In 
doing so, the Proposed Rule Change would help ensure that the Framework 
is designed to effectively measure, monitor, and manage the liquidity 
risk that arises in or is borne by LCH SA. The Commission therefore 
finds that the Proposed Rule Change is consistent with rule 17Ad-
22(e)(7).\24\
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    \23\ 17 CFR 240.17Ad-22(e)(7).
    \24\ 17 CFR 240.17Ad-22(e)(7).
---------------------------------------------------------------------------

C. Consistency With Rules 17Ad-22(e)(7)(vi)(B) and (C) Under the Act

    Rules 17Ad-22(e)(7)(vi)(B) and (C) \25\ require LCH SA to 
establish, implement, maintain, and enforce written policies and 
procedures reasonably designed to determine the amount and regularly 
testing the sufficiency of the liquid resources held for purposes of 
meeting the minimum liquid resource requirement under Rule 17Ad-
22(e)(7)(i) by, at a minimum: (i) conducting a comprehensive analysis 
on at least a monthly basis of the existing stress testing scenarios, 
models, and underlying parameters and assumptions used in evaluating 
liquidity needs and resources, and considering modifications to ensure 
they are appropriate for determining its identified liquidity needs and 
resources in light of current and evolving market conditions and (ii) 
conducting a comprehensive analysis of the scenarios, models, and 
underlying parameters and assumptions used in evaluating its liquidity 
needs and resources more frequently than monthly when the products 
cleared or markets served display high volatility or become less 
liquid, when the size or concentration of positions held by its 
participants increases significantly, or in other appropriate 
circumstances described in such policies and procedures. The Proposed 
Rule Change would add to the Framework a new Section 5.3.3.3, which 
would require that LCH SA perform its core reverse stress tests 
monthly, through which LCH SA would conduct a comprehensive analysis of 
the existing stress testing scenarios, models, and underlying 
parameters and assumptions used in evaluating liquidity needs and 
resources. Section 5.3.3 also would require that an ad-hoc analysis of 
the existing stress testing scenarios, models, and underlying 
parameters and assumptions used in evaluating liquidity needs and 
resources in certain circumstances. LCH SA would do so when the 
products it clears or markets it serves display high volatility or 
become less liquid; when the size or concentration of its clearing 
members' positions held increase significantly; or in any other 
appropriate circumstances that would lead to a liquidity coverage ratio 
falling below LCH SA's alert threshold. These changes would be 
consistent with the requirements of Rules 17Ad-22(e)(7)(vi)(B) and 
(C).\26\ The Commission therefore finds that the Proposed Rule Change 
is consistent with Rules 17Ad-22(e)(7)(vi)(B) and (C).\27\
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    \25\ 17 CFR 240.17Ad-22(e)(7)(vi)(B) and (C).
    \26\ 17 CFR 240.17Ad-22(e)(7)(vi)(B) and (C).
    \27\ 17 CFR 240.17Ad-22(e)(7)(vi)(B) and (C).
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
Proposed Rule Change is consistent with the requirements of the Act, 
and in particular, Section 17A(b)(3)(F) of the Act,\28\ Rule 17Ad-
22(e)(7) thereunder,\29\

[[Page 57479]]

and Rules 17Ad-22(e)(7)(vi)(B) and (C) \30\ thereunder.
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    \28\ 15 U.S.C. 78q-1(b)(3)(F).
    \29\ 17 CFR 240.17Ad-22(e)(7)
    \30\ 17 CFR 240.17Ad-22(e)(7)(vi)(B) and (C).
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    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
that the Proposed Rule Change (SR-LCH SA-2023-004) be, and hereby is, 
approved.\31\
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    \31\ In approving the Proposed Rule Change, the Commission 
considered the proposal's impacts on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
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    \32\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-15401 Filed 7-12-24; 8:45 am]
BILLING CODE 8011-01-P