Self-Regulatory Organizations; LCH SA; Notice of Filing of Amendment No. 1 and Partial Amendment No. 1 to Proposed Rule Change Relating to the CDSClear Select Membership Model, 84972-84978 [2024-24639]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 89, Number 206 (Thursday, October 24, 2024)]
[Notices]
[Pages 84972-84978]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-24639]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101383; File No. SR-LCH SA-2024-002]


Self-Regulatory Organizations; LCH SA; Notice of Filing of 
Amendment No. 1 and Partial Amendment No. 1 to Proposed Rule Change 
Relating to the CDSClear Select Membership Model

October 18, 2024.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4,\2\ notice is hereby given that on March 
13, 2024, 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 Rule Change''), as described in Items I, II and III below, 
which Items have been primarily prepared by the clearing agency. The 
Proposed Rule Change was

[[Page 84973]]

published for public comment in the Federal Register on March 28, 
2024.\3\ On May 9, 2024, pursuant to Section 19(b)(2) of the Exchange 
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, until June 26, 2024.\5\ 
On June 21, 2024, the Commission instituted proceedings, pursuant to 
Section 19(b)(2)(B) of the Exchange Act,\6\ to determine whether to 
approve or disapprove the Proposed Rule Change.\7\ On September 18, 
2024, the Commission designated a longer period for Commission action 
on the proceedings to determine whether to approve or disapprove the 
Proposed Rule Change, until November 23, 2024.\8\ The Commission has 
not received comments regarding the Proposed Rule Change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Self-Regulatory Organizations; LCH SA; Notice of Filing of 
Proposed Rule Change Relating to the CDSClear Select Membership 
Model, Exchange Act Release No. 34-99847 (Mar. 22, 2024); 89 FR 
21579 (Mar. 28, 2024) (SR-LCH SA-2024-002) (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ Exchange Act Release No. 100094 (May 9, 2024), 89 FR 42515 
(May 15, 2024) (File No. SR-LCH SA-2024-002).
    \6\ 15 U.S.C. 78s(b)(2)(B).
    \7\ Exchange Act Release No. 100394 (June 21, 2024), 89 FR 53685 
(June 27, 2024) (File No. SR-LCH SA-2024-002).
    \8\ Exchange Act Release No. 101094 (Sept. 18, 2024), 89 FR 
77919 (Sept. 24, 2024) (File No. SR-LCH SA-2024-002).
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    On October 11, 2024, LCH SA filed Amendment No. 1 to the Proposed 
Rule Change to make certain changes to the narrative description and 
exhibits.\9\ On October 17, 2024, LCH SA filed Partial Amendment No. 1 
to the Proposed Rule Change to correct certain errors in the Exhibit 1A 
as amended [sic].\10\ The Commission is publishing this notice to 
solicit comments on the proposed rule change, as modified by Amendment 
No. 1 and Partial Amendment No. 1, from interested persons.
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    \9\ Amendment No. 1 amends the narrative, Exhibit 1A, and 
Exhibit 5.1 [sic] to address additional proposed changes to LCH SA's 
Select Membership model. Amendment No. 1 also provides an Exhibit 
3.3 [sic] containing LCH SA's responses to an SEC request for 
information related to the Select Membership model.
    \10\ Partial Amendment No. 1 replaces the Statutory Basis and 
Burden on Competition sections of the Exhibit 1A [sic] from 
Amendment No. 1 with the text of the Statutory Basis and Burden on 
Competition sections of the narrative description from Amendment No. 
1. Partial Amendment No. 1 does not propose any additional changes.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    LCH SA is filing with the Commission an amendment to its CDS 
Clearing Rule Book (``Rule Book'') and CDS Clearing Procedures 
(``Procedures'') to incorporate new terms and to make conforming, 
clarifying and clean-up changes to implement the new model of CDSClear 
select membership.

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. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    LCH SA is proposing this Amendment No. 1 to SEC filing SR-LCH SA-
2024-002 primarily to revise the Rule Book to add an obligation for a 
Select Member to contribute to end-of-day prices and participate in 
competitive bidding should its margins exceed a predetermined threshold 
over a designated period of time. In addition, LCH SA is revising the 
Rule Book to clarify that a Select Member's obligation to contribute to 
end-of-day prices and participate in competitive bidding shall be 
removed if the Select Member's margins fall below the predetermined 
threshold over a designated period of time.
    In accordance with the current Rule Book, Select Members can 
provide clearing services in respect of credit default swaps (``CDS'') 
and options on CDS (collectively, the ``CDSClear Clearing Services'') 
to Affiliates only. LCH SA is proposing to extend the possibility for 
Select Members to provide CDSClear Clearing Services to any client, 
including Affiliates (the ``New Select Membership'') to allow some 
prospective clearing members that wish to provide clearing services to 
non-affiliated clients without becoming General Members. General 
Members must participate in Competitive Bidding for Auction Packages 
and submit prices to LCH SA, and thus the New Select Membership would 
allow some clearing members to provide clearing services to non-
affiliated clients even if they do not have the capacity to participate 
in competitive bidding or to submit prices to LCH SA.
    Pursuant to the New Select Membership, LCH SA is proposing to 
change the conditions in which the requirement for Select Members to 
participate in Competitive Bidding for Auction Packages will apply. 
Indeed, as part of the competitive auction process applicable in the 
context of the default management process implemented in respect of the 
default of a Clearing Member, each non-defaulting Clearing Member is 
required to submit bids in respect of any portfolio of trades 
reflecting the Cleared Transactions of the Defaulting Clearing Member, 
subject to exceptions provided for in the Rule Book; among them, a non-
defaulting Clearing Member which is a Select Member shall submit bids 
only in respect of a portfolio of trades that does not include any 
trade which does not belong to the relevant Select Member's Products 
Families, currently defined as the categories of credit default swaps 
(``CDS'') and options on CDS in respect of which LCH SA provides 
clearing services and that may be selected by a Select Member in the 
relevant form (the ``Product Family Form''). Instead, LCH SA is 
proposing to add the option for any Select Member to elect to 
participate in Competitive Bidding for Auction Packages at its own 
discretion, unless the amount of the total Margins associated with its 
group's house and client clearing activity exceeds a specific threshold 
as further described below under sub-paragraph (iv) (New elections and 
amended requirements to participate in Competitive Bidding and 
contribute to prices). Unlike Clearing Members admitted as General 
Members, Select Members will not benefit from the possibility to 
subscribe to the unlimited tariff allowing them to clear an unlimited 
number of trades for their own account for an annual fixed fee set out 
in the CDSClear fee grid.\11\
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    \11\ The CDSClear fee grid is available on LCH SA's website at 
the following link: https://www.lch.com/services/cdsclear/fees.
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    Pursuant to the New Select Membership, LCH SA also is proposing to 
change the method by which Select Members submit prices to LCH SA. 
Currently, Select Members may opt to submit prices to LCH SA in respect 
of its open positions belonging to the Product Families elected by the 
relevant Select Member. Select Members would be able to choose whether 
to submit prices under the New Select Membership in respect of the 
relevant Trading Cities they have selected in the new ``Select Member 
Form,'' unless the amount of the total Margins associated with its 
group's house and client

[[Page 84974]]

clearing activity exceeds a specific threshold, as discussed below.
    Besides, LCH SA is proposing to add the option for Select Members 
to elect to participate in the CDS Default Management Group and CDS 
Default Management Committee.
    At this time, LCH SA is not proposing to amend the Risk Management 
Framework or its free grid as a result of providing the New Select 
Membership. General Members will continue to have an unlimited fee 
tariff option, unlike Select Members, and General Members on variable 
tariff pay will have both lower fixed fee and lower variable fees than 
Select Members. General Members who clear for clients may also be able 
to give their clients the same liquidity margin as other General 
Members, unlike Select Members, who may incur a higher liquidity 
margin, including a liquidity concentration charge, for large 
positions, including large client positions.
    In order to implement the Proposed Rule Change, LCH SA is proposing 
to amend the Rule Book and Section 1 and Section 5 of the Procedures to 
reflect the amended terms and conditions of the New Select Membership 
model.
Proposed Revisions to the Rule Book and Procedures
(i) CDSClear Client Clearing Services
    LCH SA is proposing to extend the possibility for Select Members to 
provide CDSClear clearing services to any client, in addition to 
Affiliates.
    LCH SA is proposing to delete the defined term, ``Affiliated Firm'' 
since it was used only in respect of the current Select Member model 
pursuant to which a Select Member may provide client clearing services 
to Affiliated Firms, which include their Affiliates and any entity that 
is otherwise a member to the same institutional protection scheme as 
the Clearing Member. Since Select Members will be permitted to provide 
clearing services to any client, regardless of whether it is an 
Affiliated Firm, there is no need to keep such defined term and 
therefore any reference to ``Affiliated Firm(s)'' or to the provision 
of client clearing services to Affiliated Firm(s) is proposed to be 
deleted from the definitions of ``CCM'', ``FCM/BD Clearing Member'' and 
``Select Member'', as well as from Article 2.2.1.1(iv) and (v), Article 
2.2.2.1(iv), Article 4.2.7.2(ii), and Article 5.1.1.1. Indent (i) of 
Articles 5.1.1.2 and 6.1.1.2 of the Rule Book will be also removed 
since such indent is currently providing for the condition pursuant to 
which a Select Member may provide client clearing services to an 
Affiliated Firm only.
    As a result of the removal of the condition that a Select Member 
may provide client clearing services to Affiliated Firms only, the term 
``Affiliated Firm'' will be revised to ``Affiliate'' (as that term is 
defined in the Rule Book) in the definition of the following defined 
terms: ``CCM Indirect Gross Segregated Account Client'', ``CCM Indirect 
Net Segregated Account Client'', ``CCM Individual Segregated Account 
Client'' and ``FCM/BD Client'' and in Article 6.1.1.2.
    The definition of ``Select Member'' would also be revised to 
clarify that Select Members may offer CDSClear Clearing Services to any 
client, including Affiliates.
    LCH SA is proposing to revise Article 4.2.7.2(ii) by deleting 
reference to ``General Member'' and ``Select Member'' as well as 
``Affiliated Firms'', as this distinction would no longer be relevant 
with Select Members, under certain circumstances, having the option to 
be a Price Contribution Participant and providing CDS Client Clearing 
Services to any client.
(ii) Removal of the Defined Terms ``Product Family'' and ``Product 
Family Form''
    LCH SA is proposing to delete the defined terms, ``Product Family'' 
and ``Product Family Form'', as these defined terms are only applicable 
when participation in Competitive Bidding is mandatory for all Select 
Members in respect of the Product Families they have selected in the 
Product Family Form. Because of the new options Select Members will 
have, there is no longer a need to use the Product Family Form.
    As a result, LCH SA is proposing to delete any reference to 
``Product Family Form'' and ``Product Family'' in Section 1.1.1, 
Article 2.2.0.4, Article 3.1.6.2(ii), Article 3.1.6.5, and Clause 
5.4.1(ii) and Clause 6.1 of Appendix 1 (CDS Default Management 
Process), and replace these terms with the new defined term of ``Select 
Member Form'' (as further explained in sub-paragraph (iii) below), 
where relevant (e.g., in the definition of ``CDS Clearing 
Documentation'').
    LCH SA is also proposing to delete Article 3.1.6.8 related to 
``Product Family Form'' in its entirety as it is no longer relevant as 
a result of the changes made pursuant to this subparagraph (ii).
    Finally, any reference to a General Member or a Select Member will 
be removed from current Clause 6.1.2(ii)(a) of Appendix 1 (CDS Default 
Management Process) because of the removal of the ``Product Family 
Form''. Specifically, there is no longer a need to make a distinction 
between both memberships for the purposes of the registration process 
for the Index Swaption service in the context of the transfer of 
positions resulting from the auction process.
(iii) Select Member Form
    LCH SA is proposing to add a new defined term, ``Select Member 
Form'', in Section 1.1.1 of the Rule Book, to define the form by which 
the Select Member could make the elections (including the option to 
participate in Competitive Bidding)--as further elaborated in 
renumbered Article 2.2.0.4 of the Rule Book and Section 1 and Section 5 
of the Procedures.
    LCH SA is proposing to revise Section 1.1 (Application Procedure), 
indent (c), entitled ``CDSClear Application Form'' in the Procedures to 
replace the term ``Product Family Form'', which is no longer relevant, 
by the term ``Select Member Form''. LCH SA is also proposing to clarify 
that the Select Member Form will be made available by LCH SA's CDSClear 
Business Development & Relationship Management team.
    This Select Member Form would be used by Select Members to elect to 
participate in Competitive Bidding for selected Trading Cities. 
Proposed Clause 5.4.1(ii) would provide that all Non-Defaulting 
Clearing Members are required to participate in Competitive Bidding 
save where a Non-Defaulting Clearing Member is a Select Member provided 
that: (a) it is not required to participate in Competitive Bidding 
pursuant to Article 2.2.0.4; and (b) it has (y) not elected to 
participate in Competitive Bidding within 1 hour of the declaration of 
an Event of Default by LCH SA and (z) not complied with its obligations 
under Article 2.2.1.1(xi), in accordance with the conditions set out in 
Article 2.2.0.4. LCH SA would interpret this provision to mean that 
Select Members wishing to participate in Competitive Bidding would have 
to make such election in the Select Member Form and submit to LCH SA 
within 1 hour of the declaration of an Event of Default, and the Select 
Member must comply with the membership criteria set forth in Article 
2.2.1.1(xi). Notwithstanding the foregoing, LCH SA also interprets 
Clause 5.4.1(ii) of Appendix 1 to clarify that a Select Member would 
have to participate in Competitive Bidding if it is required to do so 
in accordance with Article 2.2.0.4 of the Rule Book (as further 
described in paragraph (iv)), irrespective of a Select Member's 
elections in respect of its participation in Competitive Bidding or 
compliance with the membership

[[Page 84975]]

criteria set forth in Article 2.2.1.1(xi) of the Rule Book.\12\
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    \12\ To be clear, a Select Member may only elect to participate 
in Competitive Bidding by doing so on the Select Member Form. LCH SA 
would not require a Select Member to participate in Competitive 
Bidding that has not elected to participate in Competitive Bidding 
by the appropriate deadline but has complied with any obligations 
under Article 2.2.1.1(xi). Further, LCH SA would not require a 
Select Member to participate in Competitive Bidding that has elected 
to participate in Competitive Bidding after the relevant deadline 
and has complied with its obligations under Article 2.2.1.1(xi).
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(iv) New Elections and Amended Requirements To Participate in 
Competitive Bidding and Contribute to Prices
    LCH SA is proposing to revise renumbered Article 2.2.0.4 of the 
Rule Book to add the possibility for Select Members to elect to 
participate in Competitive Bidding subject to the conditions set forth 
in Article 2.2.1.1 of the Rule Book (Membership Requirements).
    Article 2.2.1.1 of the Rule Book sets forth the conditions that any 
Applicant wishing to be admitted as a Clearing Member by LCH SA must 
satisfy. As such conditions apply to both General Members and Select 
Members, LCH SA is proposing to remove reference to ``Select Member'' 
and ``General Member'' from Article 2.2.1.1(iv) and (v) and Article 
2.2.2.1(iv) of the Rule Book. In addition, LCH SA is proposing to 
specify in Article 2.2.1.1(xi) that Select Members wishing to elect to 
participate in Competitive Bidding would have to demonstrate being able 
to successfully participate in the implementation of the CDS Default 
Management Process and in regular fire drills run by LCH SA in 
accordance with the Rule Book.
    Provided that Select Members comply with the conditions referenced 
in Article 2.2.1.1 of the Rule Book, LCH SA is proposing to revise 
Article 2.2.0.5 (now renumbered as Article 2.2.0.4) of the Rule Book to 
include the possibility for Select Members to:
    (i) submit Market Data pursuant to Section 5 of the Procedures in 
respect of one or more Trading City(ies); if a Select Member is a Price 
Contribution Participant, and therefore will receive the Price 
Requirements Files in respect of the relevant Trading Cities, it will 
be bound by all obligations of any Price Contribution Participant as 
set out in the Rule Book and Section 5 of the Procedures. Under current 
Article 2.2.05, the Select Member has the possibility to contribute to 
prices by submitting Market Data (and therefore to be a Price 
Contribution Participant) in accordance with Section 5 of the 
Procedures but is under no obligation to do so, which would be no 
longer the case under the New Select Membership model; indeed, once a 
Select Member will elect to be a Price Contribution Participant for one 
or more Trading Cities, or its Group Total Margin Percentage has 
exceeded a certain threshold as discussed below, it will be subject to 
the obligation to provide the Market Data for the Trading Cities in 
respect of which it has Open Positions;
    (ii) participate in Competitive Bidding as further detailed in 
Clause 5 of the CDS Default Management Process, subject to Article 
2.2.1.1(xi); it will be also clarified that a Select Member which has 
elected or is required to participate in Competitive Bidding will be 
subject to the provisions of the clearing rules which apply to any non-
defaulting Clearing Member which is required to participate in 
Competitive Bidding for each Auction Package;
    (iii) nominate DMG Representatives in accordance with Clause 11.2.2 
of the CDS Default Management Process, whereas, in accordance with the 
current version of Clause 11.2.2 of the CDS Default Management Process, 
each Clearing Member, including any Select Member, shall nominate DMG 
Representatives. Since the participation to the Competitive Bidding 
process will be no longer required in respect of Product Families for a 
Select Member, the obligation to participate in the CDS Default 
Management Group will become optional for consistency purposes. LCH SA 
would expect that Select Members that have elected to participate in 
Competitive Bidding will be interested in participating in the CDS 
Default Management Group and therefore nominate DMG Representatives for 
that purpose; and/or
    (iv) nominate representatives to be appointed as members of the CDS 
Default Management Committee in accordance with Clause 10.2 of the CDS 
Default Management Process. Similarly to the nomination of DMG 
Representatives as described in previous indent (iii), each Clearing 
Member, including any Select Member, shall nominate representatives to 
be appointed as members of the CDS Default Management Committee in 
accordance with current Clause 10.2 of the CDS Default Management 
Process and for the same reasons, this will become only an option for 
the Select Member which might be interested in participating in the CDS 
Default Management Committee if they were to select the possibility to 
participate in Competitive Bidding.
    Since a Select Member will need to make the above listed elections 
under the New Select Membership model, the possibility to change its 
election in respect of its contribution to prices as currently provided 
for in Article 2.2.0.5 has been extended to all the new elections to be 
made as well; hence, the Select Member will be able to change any of 
its elections by providing LCH SA with a copy of a duly signed updated 
Select Member Form, in accordance with the conditions set out in 
Section 5 of the Procedures pursuant to the revised Article 2.2.0.5 
(now renumbered as Article 2.2.0.4).
    New Article 2.2.0.4 will be also amended to provide that, 
irrespective of a Select Member's elections in respect of its 
participation in Competitive Bidding and its contribution to prices in 
accordance with sub-paragraphs (i) and (ii) of Article 2.2.0.4, a 
Select Member will still be required to contribute to prices by 
submitting Market Data for all the Trading Cities and participate in 
Competitive Bidding provided the percentage of its total Margins for 
the house and client clearing activities of its group (such percentage 
being referred to in as the ``Group Total Margin Percentage'' which, 
together with ``Average Group Total Margin'' and ``Average CDSClear 
Total Margin'',\13\ are new defined terms that have been added to 
Section 1.1.1 of the Rule Book) has exceeded a participation threshold 
for sixty consecutive Clearing Days. Such participation threshold will 
be referred to in the CDS Clearing Rule Book as the ``Participation 
Threshold'' which will mean the percentage as determined by LCH SA, 
which is equal to the lower of 5% and the sixth largest Group Total 
Margin Percentage among all the Group Total Margin Percentages 
calculated in respect of each Financial Group to which one or more 
Clearing Members belong. The obligation to contribute to prices and 
participate in Competitive Bidding will apply until the Clearing Day on 
which the Group Total Margin Percentage has remained 1 percentage point 
below the Participation Threshold for sixty consecutive Clearing Days. 
In

[[Page 84976]]

the event that LCH SA reasonably believe that such circumstance will 
occur, LCH SA may request the Select Member to carry out such tests as 
LCH SA may reasonably require to assess its ability to participate in 
Competitive Bidding. The purpose of these requirements is to ensure 
that, irrespective of the membership category of the Clearing Members, 
there will be a sufficient number of participants in Competitive 
Bidding and in the price contribution process. Because under the 
proposed rule change Select Members may be required to submit Market 
Data and participate in Competitive Bidding, LCH SA proposes removing 
language from proposed Article 2.2.0.4 suggesting that Select Members 
do not ever have any obligation to submit Market Data.
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    \13\ ``Group Total Margin Percentage'' will mean in respect of a 
Financial Group to which one or more Clearing Members belong and in 
respect of any Clearing Day, the ratio of its Average Group Total 
Margin divided by the Average CDSClear Total Margin. The ``Average 
Group Total Margin'' will mean, in respect of any Clearing Day, the 
average over the last sixty Clearing Days of the sum of all the 
Margins (excluding Variation Margins) calculated by LCH SA in 
respect of the Account Structure(s) of the Clearing Members 
belonging to the same Financial Group and the ``Average CDSClear 
Total Margin'' will mean, in respect of any Clearing Day, the 
average over the last sixty Clearing Days of the sum of all the 
Margins (excluding Variation Margins) calculated by LCH SA in 
respect of the Account Structures of all the Clearing Members.
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    In addition, LCH SA is proposing to revise the definition of 
``Price Contribution Participant'' in Section 1.1.1 of the Rule Book to 
clarify that it includes Select Members that have opted for submitting, 
or is required to submit, Market Data in accordance with Article 
2.2.0.4, rather than Section 5 of the Procedures. LCH SA proposes to 
add the text ``or is required to submit'' to the Price Contribution 
Participant definition to account for the possibility that a Select 
Member may be required to submit Market Data under the proposed rule 
change.
    In addition, LCH SA is proposing to revise Section 5.18.1 (Market 
Data submission) of the Procedures to delete a paragraph that notes 
that a Select Member may decide to receive or stop receiving Price 
Requirement Files and provides instructions for how a such Select 
Member can choose to receive or stop receiving Price Requirement Files. 
Indeed, the election to be a Price Contribution Participant will be 
made by the Select Member by using the new Select Member Form and this 
election can be updated by updating such form in the conditions set out 
in amended paragraph (c) of Section 5.11 of the Procedures.
    Furthermore, Clauses 10.2.1 and 11.2.2 of Appendix 1 (CDS Default 
Management Process) would be revised to include representatives 
nominated by Select Members to the CDS Default Management Group and CDS 
Default Management Committee since the Select Members will be permitted 
to opt for the possibility to participate in the CDS Default Management 
Group and/or the CDS Default Management Committee in accordance with 
amended Article 2.2.0.4 (currently Article 2.2.0.5) as further 
explained in page 11 above.
    LCH SA is also proposing to amend indent (d) entitled ``Due 
diligence and review process'' of Section 1.1 (Application Procedure) 
of the Procedures to include the obligation for Select Members to 
successful carry out tests as referenced in Article 2.2.1.1 (xi) of the 
Rule Book.
    Finally, LCH SA is proposing to revise Section 5.11(c) (Update of 
the Select Member Form) of the Procedures to also specify that the 
Select Member, having elected to participate in Competitive Bidding, 
will be required to participate in Competitive Bidding for each Auction 
Package.
(v) Updated Select Member Form
    LCH SA is proposing to revise Article 2.2.0.5 to enable Select 
Members to elect to opt out of Competitive Bidding and all other 
elections in sub-paragraphs (i) to (iv) of Article 2.2.0.5, under 
conditions set forth in Section 5 of the Procedures as this is 
currently the case but in respect of the contribution to prices only. 
The Select Member Form will allow the Select Member to notify its 
elections to LCH SA and also to update it should it wish to change any 
of its elections, in accordance with the amended provisions of Section 
5.11 of the Procedures, as further described below.
    LCH SA would revise Section 5.11(c), ``Update of the Select Member 
Form'', (formerly, ``Update of the Product Family Form'') of the 
Procedures to cover the update process of the Select Member Form, as 
the Product Family Form, and any reference thereto, is no longer 
relevant. Any update to the Select Member Form may be subject to 
passing requisite tests prescribed by LCH SA and if the update pertains 
to the Select Member no longer participating in the Competitive Bidding 
Process, such update will be effective on the eighth Clearing Day 
following the Clearing Day on which the updated Select Member Form is 
received, in order to ensure that the Select Member will still be 
required to participate in Competitive Bidding if an Event of Default 
is declared in respect of another Clearing Member at the same time the 
updated Select Member Form of such Select Member is received by LCH SA.
    LCH SA is also proposing to specify that Select Members should be 
able to change any of its election(s) via provision of an updated 
Select Member Form to the CDSClear Business Development & Relationship 
Management team via email.
(vi) Additional Amendments
    LCH SA also proposes to make other revisions to the Rule Book and 
Section 1 and Section 5 of the Procedures to correct certain cross-
references, grammar and/or typographical errors, and to provide 
additional clarification. For example, Article 1.2.2.4 of the Rule Book 
will be amended to clarify that the reference to ``days'' means 
``calendar days'' for the avoidance of doubt.
2. Statutory Basis
    LCH SA believes the Proposed Rule Change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to registered clearing agencies, including with Section 
17A(b)(3)(B) \14\ and Section 17A(b)(3)(F) of the Act.\15\ Section 
17A(b)(3)(B) of the Act requires, inter alia, that the rules of a 
clearing agency provide that any registered broker or dealer, bank or 
other person or class of persons may become a participant in such 
clearing agency.\16\ Section 17A(b)(3)(F) of the Act requires, inter 
alia, that a clearing agency's rules are designed to promote the prompt 
and accurate clearance and settlement of securities transactions, to 
assure the safeguarding of securities and funds in the custody or 
control of LCH SA, and are not designed to permit the unfair 
discrimination in the admission of participants or among participants 
in the use of the clearing agency.\17\
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    \14\ 15 U.S.C. 78q-1(b)(3)(B).
    \15\ 15 U.S.C. 78q-1(b)(3)(F).
    \16\ Id.
    \17\ Id.
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    Per LCH SA's current CDSClear Rule Book, a Clearing Member may 
either be designated as a General Member or a Select Member.\18\ A 
General Member is either a CCM \19\ or an FCM/BD Clearing Member \20\ 
that has been admitted by LCH SA as a General Member in accordance with 
Section 1 of the

[[Page 84977]]

Procedures.\21\ A Select Member is either a CCM or an FCM/BD Clearing 
Member that: (a) does not provide CDS Client Clearing Services to 
Clients other than Affiliated Firms; and (b) has been admitted by LCH 
SA as a Select Member in accordance with Section 1 of the 
Procedures.\22\ LCH SA is proposing to amend the definition of a Select 
Member to allow Select Members to offer client clearing to any client, 
including Affiliates. In doing so, LCH SA is proposing to remove the 
obligation that Select Members participate in Competitive Bidding for 
Auction Packages including trades belonging to the Product Families 
they actively trade. Instead, under certain circumstances, Select 
Members would have the ability to elect to participate in Competitive 
Bidding for Auction Packages at their own discretion. Furthermore, 
Select Members may elect to contribute end of day prices under certain 
circumstances and participate in the Default Management Process and 
Default Management Committee. This will enhance LCH SA's ability to 
contain losses and manage a clearing member default. Select Members 
would also be incentivized to become General Members for purposes of 
participating in default auctions as their client clearing activity 
grows. By expanding the clients for whom Select Members may clear to 
include any client, including Affiliates and thus expand participation 
in clearing, LCH SA believes such changes are consistent with Section 
17A(b)(3)(B) \23\ and Section 17A(b)(3)(F) \24\ of the Act such that 
its rules are designed to promote the prompt and accurate clearance and 
settlement of securities transactions, to assure the safeguarding of 
securities and funds in the custody or control of LCH SA, and are not 
designed to permit the unfair discrimination in the admission of 
participants or among participants in the use of the clearing agency.
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    \18\ See Section 1.1.1. (``Terms defined in the CDS Clearing 
Rule Book'') of the CDSClear Rule Book. https://www.lch.com/system/files/media_root/CDSClear_Rule_Book_26.09.2023.pdf.
    \19\ A ``CCM'' is defined in the current CDS Clearing Rule Book 
as any legal entity admitted as a clearing member in accordance with 
the CDS Clearing Rules and party to the CDS Admission Agreement, 
provided that if such entity wishes to provide CDS CCM Client 
Clearing Services described in TITLE V, it shall either (i) be a 
General Member or (ii) provide such CDS CCM Client Clearing Services 
to its Affiliated Firms only. If such entity is an FCM/BD, it must 
satisfy LCH SA that it is able to provide the CDS Client Clearing 
Services in accordance with Title V prior to offering such services.
    \20\ A ``FCM/BD Clearing Member'' is defined in the current CDS 
Clearing Rule Book as any FCM, BD or a legal entity that is both FCM 
and BD that has been admitted as a clearing member in accordance 
with the CDS Clearing Rules and is a party to the CDS Admission 
Agreement and which has not elected to become a CCM, provided that 
if such FCM/BD Clearing Member wishes to provide CDS Client Clearing 
Services described in TITLE VI, it shall either (i) be a General 
Member or (ii) provide such CDS Client Clearing Services to its 
Affiliated Firms only.
    \21\ See Section 1 (``Membership'') of the CDS Clearing 
Procedures. CDSClear_Section_1_Procedures__18.07.2019.pdf (lch.com).
    \22\ Id.
    \23\ 15 U.S.C. 78q-1(b)(3)(B).
    \24\ 15 U.S.C. 78q-1(b)(3)(F).
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    LCH SA also believes the Proposed Rule Change is consistent with 
Rule 17Ad-22(e)(1) of the Act which requires, inter alia, that a 
covered clearing agency establish, implement, maintain and enforce 
written policies and procedures reasonably designed to provide for a 
well-founded, clear, transparent, and enforceable legal basis for each 
aspect of its activities in all relevant jurisdictions.\25\ LCH SA 
believes the changes to its Rule Book and Procedures are clear, 
understandable, and consistent with the relevant laws and regulations 
applicable to LCH SA. In addition, LCH SA believes changes to the Rule 
Book and Procedures regarding the extension of the possibility for 
Select Members to provide CDSClear clearing services to any client, 
including Affiliates and publishing such changes on its public website 
provides greater transparency to Clearing Members and their customers, 
and to the general public. Therefore, LCH SA believes that the Proposed 
Rule Change is consistent with Rule 17Ad-22(e)(1).\26\
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    \25\ 17 CFR 240.17Ad-22(e)(1).
    \26\ Id.
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    LCH SA also believes that the Proposed Rule Change is consistent 
with Rule 17Ad-22(e)(13) \27\ of the Act which requires, inter alia, 
that a covered clearing agency establish, implement, maintain and 
enforce written policies and procedures reasonably designed to ensure 
the covered clearing agency has the authority and operational capacity 
to take timely action to contain losses and liquidity demands and 
continue to meet its obligations.\28\ Select Members were previously 
required to bid during default management auctions if the auction 
package contained products in the product family they subscribed to, 
regardless of whether the Select Member actively traded the product. 
The requirement to participate in such default auctions presents 
challenges for certain Select Members that don't actively trade in the 
products being auctioned, and thus may serve as an obstacle to clearing 
agency membership. Select Members also may not have the operational 
capacity to participate in default auctions as General Members. This is 
evidenced by LCH SA's experience facilitating fire drill exercises 
requiring participation by Select Members.\29\ LCH SA's proposed 
changes to the mandatory obligation to bid in default auctions for 
Select Members will address this issue. Furthermore, LCH SA believes 
the existing pool of General Members required to bid, in addition to 
the Select Members that opt in to bidding or who may be required to bid 
on default auction portfolios provides sufficient participation for 
purposes of ensuring LCH SA can take timely action to contain losses 
and liquidity demands and continue to meet its obligations. Therefore, 
LCH SA believes that the Proposed Rule Change is consistent with Rule 
17Ad-22(e)(13).\30\
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    \27\ 17 CFR 240.17Ad-22(e)(13).
    \28\ Id.
    \29\ For example, Select Members have historically required 
assistance managing default files and have routinely requested 
assistance addressing questions during fire drill exercises.
    \30\ 17 CFR 240.17Ad-22(e)(13).
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    Finally, LCH SA believes that the Proposed Rule Change is 
consistent with Rule 17Ad-22(e)(18) \31\ under the Act. Rule 17Ad-
22(e)(18) under the Act requires, inter alia, that a covered clearing 
agency establish, implement, maintain and enforce written policies and 
procedures reasonably designed to establish objective, risk-based, and 
publicly disclosed criteria for participation, which permit fair and 
open access by direct and, where relevant, indirect participants and 
other financial market utilities, require participants to have 
sufficient financial resources and robust operational capacity to meet 
obligations arising from participation in the clearing agency, and 
monitor compliance with such participation requirements on an ongoing 
basis.\32\ LCH SA is proposing to expand its membership criteria for 
Select Members by allowing Select Members to clear for any clients, 
including Affiliates. LCH SA is proposing to remove the obligation that 
Select Members participate in Competitive Bidding for Auction Packages 
including trades belonging to the Product Families they actively trade. 
Instead, in some circumstances, Select Members would have the ability 
to elect to participate in Competitive Bidding for Auction Packages at 
their own discretion. LCH SA believes this proposed change more 
accurately captures the risk profile of Select Members as it pertains 
to their size and operational capabilities. Specifically, Select 
Members are typically non-CDS market-making banks (price takers) and 
thus, smaller Clearing Members. In addition, Select Members may not 
have the operational capacity to bid on products they don't actively 
trade during a default management auction. As such, LCH SA believes 
that the Proposed Rule Change is consistent with Rule 17Ad-22(e)(18) 
under the Act.\33\
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    \31\ 17 CFR 240.17Ad-22(e)(18).
    \32\ Id.
    \33\ Id.
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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.\34\
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    \34\ 15 U.S.C. 78q-1(b)(3)(I).
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    LCH SA does not believe the Proposed Rule Change would impose

[[Page 84978]]

burdens on competition that are not necessary or appropriate in 
furtherance of the purposes of the Act. Specifically, the Proposed Rule 
Change will contribute to offer access to clearing services to any 
client of Select Members expanding the client clearing activity. Under 
some circumstances, the Proposed Rule Change will also remove the 
burden of Select Members from having the obligation to bid on products 
they don't actively trade in default management auctions. LCH SA 
further believes the Proposed Rule Change is equitable for both General 
Members and Select Members, as clearing members will continue to have 
discretion in electing to be either General Members or Select Members 
under the new membership model. Furthermore, existing General Members 
will not be prevented from switching to become Select Members under the 
Proposed Rule Change. The increased access to clearing services under 
the Proposed Rule Change may result in increased liquidity in the 
service as membership grows. Therefore, LCH SA does not believe that 
the Proposed Rule Change would impose burdens on competition that are 
not necessary or appropriate in furtherance of the purposes of the Act.

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-regulations/self-regulatory-organization-rulemaking); 
or
     Send an email to [email protected]. Please include 
file number SR-LCH SA-2024-002 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-2024-002. 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-regulations/self-regulatory-organization-rulemaking). 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 a.m. and 3 
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. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-LCH SA-2024-002 and should 
be submitted on or before November 14, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\35\
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    \35\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-24639 Filed 10-23-24; 8:45 am]
BILLING CODE 8011-01-P