Notice2024-00383
Self-Regulatory Organizations; LCH SA; Notice of Filing of Proposed Rule Change Relating to Liquidity Risk Modelling Framework
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
January 11, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 8 (Thursday, January 11, 2024)</title>
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[Federal Register Volume 89, Number 8 (Thursday, January 11, 2024)]
[Notices]
[Pages 1952-1963]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-00383]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99277; File No. SR-LCH SA-2023-007]
Self-Regulatory Organizations; LCH SA; Notice of Filing of
Proposed Rule Change Relating to Liquidity Risk Modelling Framework
January 5, 2024.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on 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'') the proposed rule change
described in Items I, II and III below, which Items have been primarily
prepared by LCH SA. The Commission is publishing this notice to solicit
comments on the Proposed Rule Change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
LCH SA is proposing to amend its Liquidity Risk Modelling Framework
(the ``Framework''), which describes the Liquidity Stress Testing
framework by which the Collateral and Liquidity Risk Management
department (``CaLRM'') of LCH SA assures that LCH SA has enough cash
available to meet any financial obligations, both expected and
unexpected, that may arise over the liquidation period for each of the
clearing services that LCH SA offers (the ``Proposed Rule Change'').\3\
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\3\ 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). LCH
SA also maintains an interoperability link with Euronext Clearing,
formerly Cassa di Compensazione e Garanzia, in Milan, Italy.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, LCH SA included statements
concerning the purpose of and basis for the Proposed Rule Change and
discussed any comments it received on the Proposed Rule Change. The
text of these statements may be examined at the places specified in
Item IV below. LCH SA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
1. Purpose
The Proposed Rule Change is being adopted primarily to enhance the
manner in which the Liquidity Coverage Ratio (``LCR'') is calculated,
thereby increasing the robustness of LCH SA's liquidity profile.\4\ The
changes implement recommendations made by LCH SA's Model Validation
Team following validation exercises in 2020 and 2021.
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\4\ LCH SA uses a Cover 2 approach for conducting stress tests
and assessing its liquidity resources on a daily basis. This
approach assumes that the two Clearing Member groups with the
largest liquidity exposure will default on the same day. Cover 2 is
computed by taking into account the liquidity risks related to
clearing members within the same group across all services of the
CCP that are then aggregated.
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In particular, the Proposed Rule Change will: (a) revise the manner
in which the settlement obligation liquidity requirements are
calculated by aligning it to the actual process used by the Operations
Team during a default management event and ensuring that no netting is
allowed between Members of the same Group; (b) revise the manner in
which securities pledged to the Banque de France (``BdF'') are
calculated by providing that such securities be valued at the stressed
mark-to-market price rather than the contract price; \5\ (c) extend
from five (5) days to seven (7) days the length of time for which LCH
SA must maintain liquidity resources sufficient to meet its liquidity
requirements; \6\ (d) include the liquidity needs generated by the
expiration of physically settled stock futures in the liquidity
monitoring; and (e) require LCH SA, in calculating its required
liquidity resources, to take into account that Clearing Members may
switch from depositing non-cash collateral in a Full Title Transfer
Account, which may be pledged at the BdF to obtain a liquidity line of
credit, to depositing non-cash collateral instead in a Pledge Account,
which permits no re-hypothecation rights.\7\
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\5\ See, Framework, Sec. 4.2.5.
\6\ See, e.g., Framework, Sec. Sec. 4.2.1, 5.1, 5.3.
\7\ See, Framework, Sec. 4.2.5.2.4.
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The proposed revisions to the Framework are set out in four of the
Framework's six sections: Section 1, Model Scope, Purpose and Use;
Section 4, Model Specifications; Section 5, Model Performance Testing
and Ongoing Monitoring and Section 6, Appendix.\8\
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\8\ No revisions are being proposed to Section 2, Limitations
and Compensating Controls, or Section 3, Justification of Modeling
Approach. The Framework also has a number of appendices, set out in
Section 6, that supplement the matters discussed elsewhere in the
Framework.
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Section 1 of the Framework will be amended as follows:
Section 1.1, Model Objective, Business Scope and Intended Use, will
be revised to specify that the review of the Framework will be
performed at least on an annual basis rather than quarterly to align
the frequency of the review with the frequency defined for the regular
update of the Liquidity Risk Policy.
Section 1.1.1, Reminder of SA's activities, will be revised to
specify that the Default Funds are calibrated on the assumption of
default of the two most exposed Member Groups (Cover 2). In particular,
LCH SA's Framework ensures that the liquid resources are sufficient to
cover the simultaneous default of the two most exposed Member Groups in
term of liquidity that are identified by taking into consideration all
of the possible liquidity needs, including the settlement obligation.
This is approach incorporates the Cover 1 Clearing Member Group plus
the next most exposed Clearing Member Group.\9\
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\9\ Per SEC Rule 17Ad-22(e)(7)(i), LCH SA is required to
maintain sufficient liquid resources at the minimum in all relevant
currencies to effect same-day and, where appropriate, intraday and
multiday settlement of payment obligations with a high degree of
confidence under a wide range of foreseeable stress scenarios that
includes, but is not limited to, the default of the participant
family that would generate the largest aggregate payment obligation
for the covered clearing agency in extreme but plausible market
conditions.
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Section 1.1.2, Investment activities, will be revised to clarify
the responsibilities of the Collateral and Liquidity Management
(``CaLM'') Front Office team. Specifically, the sentence: ``Three main
tasks have been assigned to the team: liquidity management, non-cash
collateral settlement in case of a clearing member's default and
investment management'' has been revised to read: ``Three main tasks
have been assigned to the team: liquidity management, non-cash
collateral liquidation \10\ in case of a clearing
[[Page 1953]]
member's default and investment management''. The purpose of this
change is to provide a more accurate description on the actual
responsibilities of the CaLM Front Office team which is in charge of
performing all the relevant activities necessary to liquidate a
member's non-cash collateral in case of defaults.
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\10\ Such liquidation includes the possible liquidation of
securities underlying reverse repurchase activities of a defaulting
clearing member.
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Section 1.3, Model dependency and interconnectivity, will be
revised to describe more fully the purpose of the various policies and
procedures that LCH SA employs to manage its liquidity risk in a manner
that is consistent with defined risk appetites, as well as with
regulatory and internal requirements. These policies and procedures
include:
<bullet> LCH SA Liquidity Plan, which sets out the principles and
procedures for liquidity management within LCH SA. Its main objectives
are to:
[cir] Ensure that LCH SA maintains sufficient liquidity at all
times in accordance with policies set by the appropriate governance
authority and monitored and reported by Risk Management;
[cir] Ensure that liquidity management and resources are aligned
with LCH SA's operational requirements to meet payment obligations as
they fall due under business as usual and stressed liquidity
conditions; and
[cir] Ensure effective liquidity risk identification and escalation
within CaLM service and other relevant LCH SA departments.
<bullet> Group Liquidity Risk Policy, which ensures that each
central counterparty (``CCP'') of LCH Group has enough liquid resources
on hand to meet all the expected and unexpected financial obligations
that arise during the course of the day. The policy lays out how a CCP
will measure whether there are enough available liquid resources.
<bullet> Group Financial Resource Adequacy Policy, which describes
the standards by which financial resources should be assessed against
Clearing Member exposures, including variation margins, initial
margins, margin add-ons for liquidity risk, concentration risk, wrong-
way risk, where appropriate, as well as the sizing and re-sizing of the
default funds across the LCH Group CCPs.
<bullet> Group Collateral Risk Policy, which sets out the standards
for managing collateral risk across the LCH Group CCPs and ensures that
CCPs must have a robust mechanism in place to process and control the
collateral posted by Members.
<bullet> Group Investment Risk Policy, which sets out the standards
for the management of investment risk across the LCH Group CCPs.
<bullet> LCH SA Collateral Control Framework, which describes the
actions undertaken by the CaLRM team to implement the collateral limits
laid out in the Group Collateral Risk Policy and to ensure that the
prices integrated on a daily basis by the Margin Team are accurate and
fairly priced.
<bullet> Group Risk Policy: Default Management, which describes the
minimum standards that each CCP within the LCH Group must meet in
dealing with the default of a Member.\11\
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\11\ The CaLM Risk Procedures: Investment Risk Monitoring, and
Default Management Guidelines, which currently are included among
these policies and procedures, have been removed.
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<bullet> Section 1.4, Model Governance, will be revised by adding a
footnote specifying that core liquidity reverse stress tests \12\ are
performed monthly in line with that stated in the Liquidity Risk
Policy. In particular LCH SA performs two set of reverse stress test:
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\12\ See, Framework, Sec. 5.3.
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[cir] On a monthly basis, in line with the methodology applied to
perform any reverse stress tests in LCH SA, risk factors (defined in
section 5.3.1) are independently stressed (one single factor at time)
to assess extreme market conditions necessary to observe a breach of
the LCR limit.
[cir] In addition, combined reverse stress test scenarios (defined
in section 5.3.2) are also performed on at least a quarterly basis.
These combined scenarios are considered as ``non-core reverse stress
tests'' with combined stress shocks applied on risks factors to
determine the joint market conditions necessary to breach the LCR limit
and assess their plausibility. This change to the Framework is being
proposed to align it with the updated Liquidity Risk Policy text
approved during the 2022 review and in compliance with the SEC rule
17Ad-22(e)(7)(vi)(B).\13\
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\13\ 17 CFR 240.17Ad-22(e)(7)(vi)(B).
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[cir] Finally, Section 1.6.1, Liquidity Sources, will be revised to
expand the tools available to CaLM to meet LCH SA's non-Euro liquidity
requirements in the event of a default. This proposed change aims to
align the Framework with the updated Liquidity Plan text approved
during the 2022 review.
Specifically, these tools include:
<bullet> Non-Euro cash deposited as collateral in accordance with
SEC Rule 17Ad-22(a)(14)(i) \14\ as being cash held at creditworthy
commercial banks;
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\14\ 17 CFR 240.17Ad-22(a)(14)(i).
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<bullet> Sale of non-Euro securities of the defaulting member in
accordance with SEC Rule 17Ad-22(a)(14)(ii) \15\:
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\15\ 17 CFR 240.17Ad-22(a)(14)(ii).
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[cir] These highly liquid and available securities would be
converted into cash via an outright sale in the open market; or
[cir] in the intermediary period between the default of the member
and the auction settlement, these securities might be converted into
cash via the repo arrangement in place at CaLM Front Office.
<bullet> Repo transactions, including: (a) bilateral repo
transactions (non-Euro cash taker and non-Euro collateral giver); (b)
cross-currency bilateral repo (non-Euro cash taker and Euro collateral
giver); (c) cross-currency triparty repo (non-Euro cash taker and Euro
collateral giver). LCH SA considers these transactions to be classified
as prearranged funding arrangements determined to be highly reliable
even in extreme but plausible market conditions due to (a) their
contractual nature; and (b) the highly liquid and overall resilience of
the repo markets for the major currencies cleared by LCH SA.
<bullet> Use of the multicurrency overdraft facility. In accordance
with SEC Rule 17Ad-22(a)(14),\16\ LCH SA considers this facility to be
classified as a prearranged funding arrangement determined to be highly
reliable even in extreme but plausible market conditions due to (a) its
contractual nature; and (b) the high credit quality, based on the
conservative internal credit score required of the bank providing the
facility.
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\16\ 17 CFR 240.17Ad-22(a)(14).
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<bullet> Use of the FX spot market transactions. In accordance with
SEC Rule 17Ad-22(a)(14),\17\ LCH SA considers this facility to be
classified as a prearranged funding arrangement determined to be highly
reliable even in extreme but plausible market conditions as (a)
numerous counterparties are already onboarded on the FX platform; and
(b) the highly liquid and overall resilience of the FX markets observed
for the major currencies cleared by LCH SA.
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\17\ Id.
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<bullet> ECB weekly tender in U.S. Dollars (``USD'').\18\ In
accordance with SEC Rule 17Ad-22(a)(14) \19\ LCH SA considers this
facility to be a prearranged funding arrangement determined to be
highly reliable even in extreme but plausible market conditions given
LCA SA's banking license and the central bank
[[Page 1954]]
status of the institution providing such resource.
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\18\ As a credit institution, LCH SA has access to the ECB Open
Market Operations in USD. LCH SA considers this resource as a last
resort.
\19\ 17 CFR 240.17Ad-22(a)(14).
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<bullet> Replace LCH SA's liabilities in non-Euro by Euro, as
permitted by LCH SA's Rule Book (Article 4.2.3.2 of CDSClear
Rulebook).\20\ In accordance with SEC Rule 17Ad-22(a)(14) \21\ Euros
used to cover liabilities would be cash held at central bank.
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\20\ See Article 4.2.3.2., <a href="https://www.lch.com/system/files/media_root/Supplementary%20Materials%20-%20LCH%20SA%20-%20CDSClear%20SA%20Rule%20Book_1.pdf">https://www.lch.com/system/files/media_root/Supplementary%20Materials%20-%20LCH%20SA%20-%20CDSClear%20SA%20Rule%20Book_1.pdf</a>.
\21\ 17 CFR 240.17Ad-22(a)(14).
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Furthermore, the committed liquidity line previously noted is being
removed as LCH SA has replaced the committed liquidity line with a
multicurrency overdraft facility at a major international bank.
In summary, LCH SA classifies the different liquidity tools
pursuant to SEC Rule 17Ad-22(a)(14),\22\ as follows:
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\22\ Id.
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<bullet> Cash--Euros cash held at central bank/non euros cash held
at creditworthy commercial banks; replacement of LCH SA's liabilities
in non euros by euros
<bullet> Uncommitted prearranged--readily available assets
convertible to cash through prearranged funding arrangements, that are
determined to be highly reliable even in extreme but plausible market
conditions by the BoD following a review to be conducted not less than
annually:
a. Sale of non-Euro securities of the defaulting members;
b. Repo transactions (bilateral repo, cross currency bilateral
repo, and cross currency triparty repo);
c. Multicurrency overdraft facility;
d. FX spot market transactions; and
e. ECB weekly tender in U.S. dollars
Additionally, a footnote (8) has been removed as the relevant
report has been taken out from the appendix in the context of the
reorganisation of the appendix 5 as described below in the relevant
section in the present 19b4.
Section 1.6.1.1, Collateral transfer, will be revised to recognize
that a Clearing Member may deposit non-cash collateral either (a) by
Full Title Transfer Accounts that LCH SA maintains at various central
securities depositories or (b) by a Single Pledged Account, without the
right of re-hypothecation, that LCH SA maintains at Euroclear Bank.\23\
This section will be further revised to clarify that non-cash
collateral deposited in Full Title Transfer Accounts may be pledged at
the BdF to obtain a liquidity line of credit that can be drawn on
intraday or overnight, if needed. Additionnaly, precisions have been
added regarding:
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\23\ Currently, non-cash collateral may be pledged without
limits only with regard to the CDSClear service. Moreover, there are
limits on the amount of pledge collateral that may be deposited for
RepoClear, [euro]GC (Tri-Party Repo) and EquityClear. The majority
of the collateral that LCH SA currently collects is by Full Title
Transfer.
--the existing limits applied on Repoclear SA/[euro]GC Plus and
EquityClear SA for pledge
--the fact that FFTA is used in majority by Clearing Members
Finally, to enhance the wording, a precision has been added to precise
that only resources received in FFTA can be pledged to 3G pool.
The change aims to improve the clarity of the document as there is
no change applied on the actual offer of collateral account.
Section 1.6.1.2, Assessment of assets' liquidity, will be revised
to provide that Tier 1 assets, i.e., securities that are deemed to be
of sufficient quality and demand to generate liquidity in the event of
a default or a major market stress at little or no loss, will include,
in addition to all European Central Bank (``ECB'') eligible collateral,
UK Gilts and U.S. Treasury Bills, along with Dutch and Belgian central
bank guarantees (but only for the defaulting Clearing Member). In
addition, recognized Tier 3 assets, i.e., assets that are deemed to
have little or no liquidity value in the event of a default or major
market stress, or are deemed to be too illiquid to be converted in the
timeframe that LCH SA would need the liquidity, will be revised to
include non-cash collateral denominated Danish Krone, Norwegian Krone,
Swedish Krona, Japanese Yen, Swiss Francs, Canadian Dollars and
Australian Dollars.
Section 1.6.1.3, Synthesis, will be revised to clarify that LCH SA
does not retain the right of collateral re-hypothecation for collateral
deposited under the pledge regime unless the Clearing Member is in
default. The reference specific to CDS has been removed as now the
pledge is offered for all LCH SA services. It will confirm that CaLM
demonstrated in 2021 and 2022 the ability to raise Euro liquidity from
non-Euro non cash collateral in USD and GBP. Moreover, it will clarify
that when considering non-Euro non cash collateral as a liquidity
source, a conservative buffer of ten percent (10%) is applied to absorb
market stress that may occur beyond the volatility already captured by
the all-in haircut. In addition, it will confirm that Central Bank
guarantees can be considered for liquidity purposes only if the
relevant Member posting them is in default because only in that
situation the CCP would acquire full ownership of the guarantee
provided by the Central Bank.
Section 1.6.2.1, Liquidity needs arising from members' defaults,
will be revised to clarify the description of the liquidity needs that
may arise from settlement. The following sentence: ``Cash outflows are
generated when SA has to step in on behalf of the defaulted member to
post cash to non-defaulting member(s) and take in the underlying
collateral'' has been revised to read: ``Cash outflows are generated
when SA has to step in on behalf of the defaulted member to post cash
to non-defaulting member(s) and take in the underlying securities''.
This change is being made to increase the accuracy of the document and
does not represent a change in the methodology or procedure of LCH SA.
Moreover, LCH SA will also specify that the value of the bonds
pledged at the ECB to raise liquidity takes into account stress market
conditions.\24\ The addition of the ``stress market conditions'' is
thus performed for clarity in line with adjustments performed in the
LCR model assumptions.
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\24\ A detailed presentation of the model enhancement is
reflected in Section 4.2.5.1.1.2 of the Framework.
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Section 4 of the Framework, which explains the modelling Framework
in detail, will be amended, as noted above, to enhance the manner in
which the LCR is calculated, thereby increasing the robustness of LCH
SA's liquidity profile. This section discusses first, the calculation
of the Operational Target, i.e., the amount of liquidity required to be
held to satisfy LCH SA's liquidity needs related to the operational
management of LCH SA in a stressed environment, but one that does not
lead to a Clearing Member's default. The Operational Target ensures
that LCH SA's liquidity resources are always greater than its
operational liquidity requirements.
Section 4.1.2, Model inputs and Variable selection, will be revised
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 requirement of the Operational Target. Two
footnotes will be updated to specify that Portuguese and Finnish
government bonds posted via the triparty solution are excluded from the
liquid assets (repayment of excess cash and stressed margin reduction)
because these securities are not transferrable to the BdF due to
operational constraints. These changes will increase the accuracy of
the document and does not represent a change in the methodology or
procedure of LCH SA. Finally, the change of branding from CC&G to
[[Page 1955]]
Euronext Clearing has been performed in line with the change of
branding performed in the whole documentation and described below in
the present 19b4.
Section 4.1.4, Mathematical formula, derivation and algorithm, and
numerical approximation, will be revised to clarify that the
Operational Target is calculated as the sum of the liquidity
requirements described in Section 4.1.2 and that the liquidity
requirements must always be lower than the resources available. This
change will increase the accuracy of the Framework and does not
represent a change in the methodology or procedure of LCH SA.
Section 4.1.5, Model assumptions, will be revised to provide that
liquidity resources must be sufficient to meet LCH SA's liquidity
requirements for the next seven (7) days in stressed situations. This
section currently provides that liquidity resources must be sufficient
to meet LCH SA's liquidity requirements for the next five (5) days.\25\
The change incorporates a model validation recommendation to extend the
LCR and consequently also the Operational Target to a 7 day period in
order to align the liquidity monitoring time horizon to the RepoClear
service new maximum holding period to manage a default (changed from a
3-day to 5-day holding period since the end of June 2022, to which LCH
SA added 2 days of settlement convention). Additionally, to enhance the
clarity, details related to the management of the former horizon have
been removed in order to clearly state that the horizon is 7 days and
results will be displayed without any aggregation.
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\25\ Consistent with this change, LCH SA will take into account
the maximum daily switches from cash and ECB eligible cash
securities to non-Euro denominated securities observed over seven
(7) days rather than five (5) days, as currently provided.
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In addition (4.1.5.d), the provisions of this section describing
the liquidity requirements drivers, which assume, in part, that 100
percent (100%) of the excess cash and excess ECB eligible securities
will be withdrawn over the 3-day period will be revised. 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 provide instead 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, the remaining Clearing Members will
withdraw their excess on the third day (T+2). Precision on the footnote
to specify that Portuguese and Finnish government bonds posted via the
triparty solution are excluded from the liquid assets as these
securities are not transferrable to the BdF due to operational
constraints.
For the liquidity requirement that aims to quantify the potential
substitution of cash collateral/ECB eligible securities (4.1.5.e), LCH
SA will take into account the maximum daily switches from cash and ECB
eligible cash securities to non-Euro denominated securities observed
over seven (7) days rather than five (5) days as currently provided to
incoroporate the model valitation recommendation. In order to be
consistent with this change from five to seven days in the time
horizon, two additional definition of amount of switch corresponding to
T+5 and T+6 have been added. Moreover, it will be clarified that on Q3
2022 CaLM Front Office demonstrated the ability to transfer ECB
eligible securities to BdF within 30 minutes for all eligible
countries. The list of specific countries will be removed from the
Framework as it is dynamic and depends on the collateral eligible at
the CCP that can be found on the LCH SA website (a footnote will be
added to point towards website). With respect to the amount of equity
lodged, as LCH SA takes the maximum amount of switched observed, the
reference to 100 million will be removed as the amount is a dynamic
figure. It will also be precised that the amount of equity deposited
over the past 3 years which is also a dynamic figure remains
negligible. These changes will improve the accuracy of the Framework
and do not represent a change in the methodology or procedure of LCH
SA.
For Section 4.1.5.f which describes the potential intraday
additional liquidity injection that may generate securities carried
overnight it will be specified that the amount is calibrated as the
maximum EOD securities carried over night over the whole time series
available. This change will increase the accuracy and clarity of the
Framework and does not represent a change in the methodology or
procedure of LCH SA.
Moreover, Section 4.1.5.g will be revised to modify the targeted
estimated margin reduction of non-defaulting Clearing Members.
Currently, estimated margin reduction is calculated over a three-day
period. As revised, targeted estimated margin reduction will be
calculated over seven (7) consecutive days to address model validation
recommendation.\26\ To reflect this change, a detailed table has been
added describing the margin reduction rate per day of the horizon
period in line with the above In order to enhance the wording, two
bullet points have been revised to state that (a) margin reduction
applied is greater than the biggest one observed in the historical
window considered for the calibration (b) for each day, the reduction
is over the 99,7% percentile on the available set of data. In order to
precise the size of the lookback period of observation, a footnote will
be added detailing the current start date and end date. One footnote
will be also updated to provide that Portuguese and Finnish government
bonds posted via the triparty solution are excluded from the liquid
assets because such securities are not transferrable to the BdF due to
operational constraints.
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\26\ The overall compounded margin reduction will be above the
maximum historical 7-day margin reduction observed.
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These additional changes will increase the accuracy and clarity of
the document and does not represent a change in the methodology or
procedure of LCH SA.
Finally, Section 4.1.5.h will be reworded to specify that the
liquidity requirements stemming from estimated Variation Margin payment
to be processed towards the interoperable CCP is calculated on the
basis of the Initial Margin actually posted at LCH SA to cover a 5-days
holding period to be spread out over a 5-days period according to a
simulated market stress based on historical yield shifts (third bullet
point). The rewording of the introduction of 4.1.5.h aims to clarify
the computation of the theoretical allocation of IM (leading to the
removal of one footnote that was duplicated) as well as to reflect the
change of branding. These changes will increase the accuracy and
clarity of the document and does not represent a change in the
methodology or procedure of the LCH SA.
As mentioned, Please also note that reference to the depth of time
series (4.1.5.e and 4.1.5.f) are proposed to be removed as available
set of data are wider and every points are considered. This would avoid
LCH to periodically review the depth in the wording.
Finally, the notion ``DF'' has been added in 4.1.5.i to reflect the
usual acronym of the default fund. The review was the opportunity also
to correct a typo in the third bullet point of this section.
Section 4.2 of the Framework, LCR, which describes the manner in
which
[[Page 1956]]
the LCR is calculated, will be revised as follows:
Section 4.2.1, Model overview, will be revised 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
Members Groups during the seven (7) days following the default, rather
than five (5) days, as is currently provided. Moreover the sentence:
``3 days holding period of margin collateral, i.e., SA ensures it has
sufficient liquidity to meet non-defaulting member's cash requests even
if SA is waiting for the defaulter's margin collateral to be
liquidated'' will be revised to read: ``5 days holding period of margin
requirement, i.e., SA ensures it has sufficient liquidity to meet non-
defaulting member's cash requests even if SA is waiting for the
defaulter's position to be liquidated''. These changes will enhance the
accuracy and clarity of the document and do not represent a change in
the methodology or procedure of LCH SA (i.e., ``requirement'' is an
enhanced wording as the objective is to cover the clean risk
(collateral might include excess). Similarly, ``positions'' better
clarifies the liquidity needs that are present until the final
liquidation of the complete position of the Defaulted Members.
Further, the sentence: ``The ERCO has approved the 5 days liquidity
horizon as per the article 22 of the Group liquidity risk policy'' will
be revised to read: ``The ERCO has approved the 7 days liquidity
horizon as per the Group liquidity risk policy''. The change will
remove a dependency between the two documents as the number of articles
may change when the Group Liquidity Policy is updated on an annual
basis, while ensuring that the policy content is referred in the
Framework.
Finally, the sentence: ``The cover 2 is computed by taking into
account the liquidity risks related to clearing members within the same
group across all services within the CCP that are aggregated'' will be
revised to read: ``The cover 2 is computed by taking into account the
liquidity risks related to clearing members within the same group
across all services of the CCP that are then aggregated''. These last
changes do not trigger any methodology changes but have been amended to
enhance the clarity. The reference to footnote (24) is proposed to be
removed as it refers to a non existing footnote (typo).
Section 4.2.2, Model inputs and Variable selection, and Section
4.2.4, Mathematical formula derivation and algorithm and numerical
approximation, will be revised to provide that securities pledged at
the BdF and included among Total Available Assets will be valued at
stressed market prices and include the ECB haircut effect on the
resulting figures. The notion of ``for each market'' is proposed to be
removed to preserve clarity. At the same time for the computation of VM
erosion, the market risk impact arising from the contractual settlement
of RepoClear will be excluded from the computation of the component as
treated on the asset side as previously described (i.e., the component
that was previously considered in liabilities will be incorporated in
the assets as a reduction of the amount of liquidity sourced from the
clearing securities pledged to BdF, cf 4.2.4.c). For this purpose, the
sentence ``on top of which is added the market stress risk impact on
the contractual settlement for repoClear'' will be removed. These
changes have the purpose of adressing a model validation recommendation
to enhance the treatment of market stress in the computation of
liquidity sourced by the Central Bank.
Moreover an update of wording will be done to consider the Total
Default Liabilities and Total Available Assets as plural rather than
singular as currently the case. It will be specified that in the VM
Erosion calulation all LCH SA services are considered that is Cash &
Derivatives, Repoclear, EGC, and CDS markets. Two footnotes will be
updated to specify that Portuguese and Finnish government bonds posted
via the triparty solution are excluded from the liquid assets because
not transferrable to the BdF due to operational constraints (4.2.2/
4.2.4). These changes have will increase the accuracy and clarity of
the document and do not represent a change in the methodology or
procedure of LCH SA.
Finally, additional clarifications will be made regarding the
treatment of FCM/BD client resources in the LCR. In particular, LCH SA
will further specify that in a context of default (and purpose of the
LCR monitoring) LCH SA will only treat FCM/BD client collateral as
available liquidity resources if and only if this FCM/BD client
defaults and generates some liquidity needs. Its resources will not be
considered as available liquidity assets for any other FCM/BD clients
and/or the FCM/BD clearing member or any other clearing member of the
CCP. In particular, in case of one FCM/BD client defaulting, other FCM/
BD clients assets will not be considered to cover the liquidity needs
of the defaulting FCM/BD client. These changes are also replacing
``clearing member'' with client where relevant to increase clarity.
The changes will enhance the accuracy and clarity of the document
and does not represent a change in the methodology or procedure of LCH
SA.
Section 4.2.5, Model Assumptions, describes the various risks that
each business line must consider in determining liquidity requirements
as well as other liquidity requirements that LCH SA must meet.\27\
Title of Section 4.2.5.1 will be changed to `Description of risks per
Business line' to reflect that different risks are tackled in different
sub section.
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\27\ As noted earlier, 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). LCH SA also maintains an
interoperability link with Euronext Clearing.
---------------------------------------------------------------------------
Section 4.2.5.1.1, RepoClear, will be revised to provide 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. The final settlement outflows are then aggregated at the
Clearing Member Group level without allowing any netting across members
of the same Clearing Member Group. The objective of these changes is to
address two model validation recommendations: to align the LCR
liquidity monitoring period to the RepoClear new maximum holding period
to manage a default (5 days holding period of margin +2 of settlement
convention); and to not allow any netting between entity of the same
Group. Moreover, a table summarizing the liquidity requirements
according to the direction of the repo transactions as well as a
paragraph describing the specific treatment of forward starting repo in
the calculation of the settlement obligation outflows have been removed
because a new enhanced algorithm was designed and described in the new
sections 4.2.5.1.1.1 and 4.2.5.1.1.2 as described later in the present
form. One bullet point is proposed to be removed as well as the
sentence ``Note that the post default date forward start leg of cash
borrower transaction are excluded for the LCR calculation (e.g., starts
date: Default date + 1 day and returns legs: Default date +2). The
transactions are performed through DVP so LCH SA will fail to deliver
the securities leading no liquidity requirements related to the returns
legs to factor in the LCR to keep consistency with the new algorithm.
Section 4.2.5.1.1.1, Liabilities contractual obligations on
physical delivery, will describe the methodology
[[Page 1957]]
to compute liabilities due to settlement obligations. In particular, in
case of default, LCH SA shall assume and honour the obligations of the
defaulted Members. In case of securities with physical settlement, this
may represent substantial liquidity needs for LCH SA. The enhanced
methodology presented in this section leverages on the actual
management of settlement instructions performed by the Fixed Income
Operations department during an event of default to fully take into
account in the calculation of the liquidity needs the specific
settlement dynamics over the time horizon of the LCR with the objective
to more closely align the computation of the LCR with the actual
default management process.
To model the settlement obligation, the DCO would start by
constructing the contractual balance of net buyer/seller position by
Clearing Member, ISIN and date within the LCR time horizon:
1. Identify transactions (each leg independently for repos) that
settles within the time horizon of the LCR and allocate, to the
settlement date, the contractual cash amount to be settled and the
corresponding nominal of securities to be delivered; and
2. Aggregate cash amounts and nominals by member, ISIN and date.
This contractual view of cash and security flows is then adjusted
to take into account the eventual effect of carrying forward the
liquidity position (the effect of one day fails on the contractual
flows of the following dates). In fact, in case of a net seller
position on date t, LCH SA would fail to deliver securities if they are
not already sourced and/or pledged at the BdF and would continue to
fail until the date t' on which the balance is net buyer (or until the
end of the time horizon when the portfolio would be perfectly matched
again). In that case, LCH SA would receive no cash on date t for the
securities in which it fails to deliver and would need to inject less
cash into the settlement system on date t' because of the netting
effect of carrying forward. The real cash injection flows obtained are
aligned with the Operations Team view of the settlement obligation in
case of default.
When the real cashflow injections are obtained as described above
for each member they are then aggregated at group level.
A simplified numerical example is provided to demonstrate the
sequence of steps used to calculate the liquidity needs deriving from
settlement obbligation.
The changes described in this section will improve the liquidity
monitoring of LCH SA and address two model validation recommendations:
to improve the liquidity needs estimation related to Settlement Risk
and to not allow any netting between entity of the same Group.
Section 4.2.5.1.1.2, Assets: settlement securities pledged at
Central Bank, will describe the methodology to compute the liquidity
raised through the pledge at a Central Bank of the settlement
securities withdrawn from the settlement system on behalf of the
defaulter. In particular, when LCH SA pledges eligible securities at
the Central Bank in exchange of liquidity, two important factors need
to be considered:
--the market price of the securities that may be decreased by
unfavorable market conditions therefore reducting the value of the
collateral and consequently the amount of liquidity that can be sourced
out of it; and
--the haircut applied by the Central Bank when lending cash to LCH SA
in exchange of securities.
The changes described in the following paragraph provide a summary
of the calculation performed by the DCO when modelling the liquidity
that it would be able to source from the Central Bank.
The amount raised is the sum of the unstressed assets value after
taking into account the ECB haircut and a stress price market impact
applied to the value of the securities. In order to calculate the
amount of liquidity raised from the BdF, LCH SA will consider the real
security flows calculated in Section 4.2.5.1.1.1 which are equivalent
to securities pledged at/retrieved from the BdF (with an opposite
direction with respect to settlement). The securities are then valued
at current market price at the moment of default with the application
of an ECB haircut. To quantify the market impact, a preliminary
screening is applied in order to identify correctly only the subset of
transactions to which the market impact applies because they are not
covered by offsetting inflow. In particular for long cash transactions
or Cash Borrower Repo--Return Leg:
<bullet> Before the settlement date: an eventual bond price
decrease would result in a margin decrease of the non-defaulting member
due to Variation Margin credit which is accounted for in the LCR
liabilities in a separate entry.
<bullet> On the settlement date: LCH SA would get the securities
from the non-defaulting member, pledge them at the BdF and receive an
amount of cash equal to the stressed price of the bond minus the
haircut. The additional liquidity impact, with regards to the
unstressed assets described previously, rises from the bond price move
from the default date until the settlement date. Hereunder, we will
refer to this component by ``Settlement Market Price Impact''.
<bullet> After the settlement date: once the bond is pledged
overnight, the price decrease afterwards would trigger an additional
liquidity impact to cover the cash that needs to be returned to the BdF
because of the lower amount of the collateral deposited, i.e., the
price move from the settlement date until the date on which LCH SA will
have a settlement obligation to deliver the bond (or until the book is
perfectly matched again after the settlement of the auction).
Hereunder, we will refer to this component by ``Pledge Market Price
Impact''.
The total market impact is calculated as the sum of Settlement
Market Price Impact and Pledge Market Price Impact. The bond prices
moves generating the market impact is calculated in accordance with
RepoClear stress test scenarios. The final amount of liquidity
retrieved from the BdF resulting from the pledge of securities
retrieved from settlement on behalf of the defaulted members will be:
Liquidity retrieved from the BdF (t) = Real Security Flow * Market
Price at moment of default * (1-ECB Haircut)-Settlement Market Price
Impact-Pledge Market Price Impact.
A simplified numerical example is added to the Framework to demonstrate
the sequence of steps used to calculate the liquidity amount retrieved
from the BdF.
The change will improve the liquidity monitoring of LCH SA and
address a model validation recommendation to improve the liquidity
needs estimation related to Market Risk.
To remain consistent with the calculation of settlement
obligations, 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. This change address a model
validation recommendation.
Section 4.2.5.1.1.3, Market Risk, will be revised to provide that,
in addition to the settlement obligations driven flows, 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
formula to estimate this amount is changed and will 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,
[[Page 1958]]
market liquidity issues. The purpose of this change is to address a
model validation recommendation by improving the liquidity needs
estimation related to Market Risk in the LCR. Additionally, a footnote
will be added to disclose that a list of stress scenario is reported in
appendix 6.7.
Section 4.2.5.1.2, [euro]GCPlus, will be revised to provide that,
when calculating the settlement driven cash outflows, the aggregation
is based on data provided by the triparty agent and that only positions
in which the defaulter is a cash borrower (collateral giver) in the
first leg of the repo and, therefore, collateral taker when the repo
closes, generate a liquidity need. Therefore, in case of default of a
Member collateral giver in the first leg, LCH SA has to inject cash and
withdraw securities when the repo closes (cf new footnotes).
Finally a repetition of words have been cancelled to remove
redundancy in the text. The changes will enhance the accuracy and
clarity of the Framework and do not represent a change in the
methodology or procedure of LCH SA.
Section 4.2.5.1.2.1, Market risk, will be revised to provide that
for [euro]GCPlus the additional liquidity needs generated by negative
mark to market payments to non-defaulting members is estimated in line
with what is done for RepoClear \28\ as the worst stress loss of the
defaulter position according to the relevant [euro]GCPlus stress test
scenario and adding additional margins. The change will incorporate a
model validation recommendation by improving the liquidity needs
estimation related to Market Risk in the LCR.
---------------------------------------------------------------------------
\28\ Please refer to changes to section 4.2.5.1.1.3 described in
the present document.
---------------------------------------------------------------------------
Moreover, a numerical example has been added to the Framework to
demonstrate that the eventual BdF haircut will always be covered by the
collateral posted by the collateral giver as requested by the current
margin methodology (corresponding to ``Example''). The change will
increase the accuracy and clarity of the document and does not
represent a change in the methodology or procedure of LCH SA.
Section 4.2.5.1.3.1, Cash Equity, will be revised to provide 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 Group. The objective of the change is to enhance the accuracy and
clarity of the document and does not represent a change in the
methodology or procedure of LCH SA.
Moreover, the methodology to consider among the liquidity
requirements the equity settlement arising from the expiration of
physically settled futures is detailed. In particular, in case the
defaulting member is long futures which expire 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 the
enhanced algorithm daily identifies all the potential maturing long
futures positions on the day of the computation and on the upcoming
business day as well, identifies the positions of the Cover 2 Members
Group and finally, given the potential physical settlement, adds the
relevant liquidity needs to the computation of the LCR. A numerical
example is included to provide a sample of the calculation.This change
has the purpose of addressing a model validation recommendation by
including the liquidity needs related to the expiry of physical
delivery single stock futures in the LCR.
In addition, this section will provide that the liquidity needs
generated by negative mark to market payments to be made to non-
defaulting members is changed in line with what is done for the other
LCH SA services \29\ (RepoClear, [euro]GCPlus, CDSClear) and will be
calculated as the worst stress loss of the defaulter position according
to the relevant EquityClear stress test scenario with the addition of
additional margins.
---------------------------------------------------------------------------
\29\ Please refer to changes for Sections 4.2.5.1.1.3,
4.2.5.1.2.1 and 4.2.5.1.4 described in the present document.
---------------------------------------------------------------------------
The objective of the change is to incoporate a model validation
recommendation by improving the liquidity needs estimation related to
Market Risk in the LCR.
A footnote has been added to improve the accuracy of the document
to specify that the full list of stress scenarios used is presented in
a dedicated Appendix.
Finally, this section will explain that because equities are not
eligible at the BdF they will not be considered as liquidity sources in
the assets of the LCR. The change will increase the accuracy and
clarity of the document and does not represent a change in the
methodology or procedure of LCH SA.
Section 4.2.5.1.3.2, Listed derivatives, will be revised to 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. These changes will improve the
accuracy and clarity of the document and does not represent a change in
the methodology or procedure of LCH SA (i.e., monthly expiry is already
efficiently implemented in the computation of the LCR).
The calculation of the liquidity needs generated by negative mark
to market payments to be done to non-defaulting members is changed in
line with what is done for the other LCH SA services \30\ (RepoClear,
[euro]GCPlus, CDSClear) and will be calculated as the worst stress loss
of the defaulter position according to the relevant EquityClear stress
test scenario with the addition of Additional margins. The change will
address a model validation recommendation by improving the liquidity
needs estimation related to Market Risk in the LCR. Finally, please
note scenario is now stated in plural to reflect that several scenarios
(disclosed in appendix 6.7) are used to model stressed VM.
---------------------------------------------------------------------------
\30\ Id.
---------------------------------------------------------------------------
Section 4.2.5.1.4, Credit Default Swaps, will be revised to clarify
that the calculation of the liquidity needs generated by negative mark
to market payments to be done to non-defaulting members is changed in
line with what is done for the other LCH SA services \31\ (RepoClear,
[euro]GCPlus, EquityClear) and will be calculated as the worst stress
loss of the defaulter position according to the relevant CDSClear
stress test scenario with the addition of additional margins. The
change adresses a model validation recommendation by improving the
liquidity needs estimation related to Market Risk in the LCR. Finally,
please note scenario is now stated in plural to reflect that several
scenarios (disclosed in appendix 6.7) are used to model stressed VM.
---------------------------------------------------------------------------
\31\ Please refer to changes for Sections 4.2.5.1.1.3,
4.2.5.1.2.1, 4.2.5.1.3.1 and 4.2.5.1.3.2 described in the present
document.
---------------------------------------------------------------------------
A footnote have been added to improve the accuracy of the document
to specify that the full list of stress scenarios is disclosed in a
dedicated Appendix.
Section 4.2.5.2 will be revised to modify those provisions of the
Framework relating to the other liquidity requirements to be taken into
account in calculating the LCR.
Section 4.2.5.2.1 will be revised to provide that the Operational
Target to be included in the calculation of the LCR will be restated by
removing margin outflows calculated in the Operational Target and
related to Cover 2 for LCR. This is because LCH SA has the right to
fully use the collateral of the
[[Page 1959]]
defaulters including excess. The changes enhance the accuracy and
clarity of the document and do not represent a change in the
methodology or procedure of LCH SA.
Section 4.2.5.2.2, Margin non-cash collateral, will be revised to
provide that LCH SA will compute the pure stress loss of such
collateral rather than the stress loss over haircut (less conservative)
as currently stated, by applying a set of stress scenarios used by
RepoClear in the calibration of the Default Fund and choosing the one
that generates the biggest liquidity exposure in terms of Cover 2. The
choice of application of Repoclear scenarios is driven by the fact that
only bonds deposited as collateral can be used to raise liquidity while
equities are completely excluded from the calculation of liquid assets.
The change aims to improve the liquidity monitoring by leveraging on
the same coherent scenarios for all bonds position included in the LCR
computation. A list of scenarios is disclosed in appendix of the LRMF.
Section 4.2.5.2.3, CaLM investments, will be revised to specify
that when calculating the liquidation losses related to the collateral
posted by the defaulting Member through the reverse repo activity and
the potential outright purchases losses deriving from the CCP
portfolio, LCH SA will apply the driving stress scenario chosen among
the set of scenarios from RepoClear consistent with the determination
of the Cover 2 described in section 4.2.5.4. ``Potential'' has been
added because the loss on the outright portfolio will be only realized
if the DCO is forced to sell the portfolio because of liquidity needs
and does not wait until maturity. The changes will increase the
accuracy and clarity of the document and do not represent a change in
the methodology or procedure of LCH SA.
Section 4.2.5.2.4, Collateral pledge modelling, is added to
describe in details how pledged collateral has to be modelled when
calculating the asset of the LCR. In particular LCH SA assumes that
Clearing Members will utilize their ability to pledge collateral near
the maximum allowed on each LCH SA service and, therefore, this amount
will be subtracted from the amount of non-cash collateral included in
the LCR assets.
The expected additional pledge will be calculated as the difference
between the Maximum pledge capacity scaled by a parameter that can
capture Clearing Members behaviour and the actual pledge capacity used
currently by the Clearing Members.
The Maximum pledge capacity amount will take into consideration
eventual concentration limits in places for specific LCH SA services
(i.e., Repoclear, [euro]GCPlus and EquityClear).
In contrast, for the Members not having a pledge account active,
CDSClear non-cash collateral deposited under Full Title Transfer with
the exclusion of securities in DKK, NOK, SEK, JPY, CHF, CAD and AUD is
considered to be eligible to raise liquidity and, therefore, is
included among liquidity resources. This section has been added to
address a model validation recommendation by disclosing more details in
the modelling of the collateral pledge.
Section 4.2.5.3, Stress scenario selection, will be revised to
clarify that the stress tests scenarios selected for each LCH SA
service will be consistent with a market state resulting from the
default of the Cover 2 as assumed by the LCR. The scenarios selected
are taken from the set of scenarios used to calibrate the Default Fund
amount on the different services and in particular include scenarios
that simulate an increase in interest rates and credit spreads and a
decrease of equity indexes. The change has the purpose of increasing
the accuracy and clarity of the document and ensure that the stress
scenarios chosen are coherent with the LCR assumption of Cover 2
default and the consequent increased volatility on the market. In other
terms, additions of wording aim to highlight the consistency of
stressed scenarios applied on different market to define the Cover 2
(i.e., rate up (iii), index and equities down (ii) and CDSClear
widening (i)).
A full list of the selected stress test scenarios for each service
is set out in an Appendix to the Framework. The driving scenario is
then selected as the one that produces the largest stress loss on a
Cover 2 basis as described in Section 4.2.5.4.
The list of scenarios has been updated to select, among the
available scenarios used by the LCH SA services, only the most relevant
ones given the LCR assumptions. The purpose is to improve the liquidity
monitoring of LCH SA.
In addition, when describing the additional stress scenario where a
downgrade of sovereign ratings results in an increase of ECB haircuts
applied when the securities are pledged at the BdF to raise liquidity,
the table reporting the values of the ECB haircuts applicable will be
updated. The new values are the official values applied by the ECB \32\
on each eligible collateral posted to raise liquidity as a function of
the collateral category and maturity.
---------------------------------------------------------------------------
\32\ Please refer to <a href="https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32023O0832">https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32023O0832</a>.
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Section 4.2.5.4, Cover 2 selection, provide the description of the
methodology used by the DCO to identify the two Member Groups most
exposed in term of liquidity (Cover 2) which are assumed to be
simultaneously in default in the LCR. Liquidity needs deriving from
Settlement risk, Market risk and Investment risk are aggregated to rank
the Member Group and identify the most exposed ones. The section will
be revised to specify that the Cover 2 will be identified by
calculating the following liquidity requirements at the Clearing Member
Member level, aggregating the total requirement at the Clearing Member
Group level and then choosing the two most exposed Clearing Member
Groups:
<bullet> Stress Variation Margin: for all the services the
variation margins are modelled by applying the most punitive scenario
among the chosen sets and consistent with the LCR assumptions;
<bullet> Settlement liquidity requirements due to RepoClear and
Cash equity settlement obligations. In case of securities pledged at
the BdF their value would be stressed according to the scenario that
would generate the highest loss;
<bullet> Non-cash Collateral stress losses are estimated by
stressing the non-cash collateral eligible for BdF liquidity with the
set of scenarios consistent with the LCR assumptions;
<bullet> Investment stress losses over haircut are estimated by
applying the stress scenarios to the collateral received from the
reverse repo activity with each specific counterpart; and
<bullet> ECB Haircut impact is quantified by applying the relevant
haircut to all the securities received from a specific member that are
eligible for Central Bank liquidity.
Between the set of scenarios used from the RepoClear Stress Test
framework, the set of scenarios used from the CDSClear Stress Test
framework and the set of scenarios used from the EquityClear stress
test framework, only the one jointly generating the maximum loss of the
sum of all the above elements for the two most exposed Clearing Member
Groups will be used to determine the Cover 2 and calculate the final
LCR.
The changes have the objective to coherently include in the
computation of the Cover 2 the changes related to the update of the
stress test scenarios considered in the LCR (described in
[[Page 1960]]
Section 4.2.5.3), the changes related to the impact of market risk on
the securities pledged at Central Bank (described in Section
4.2.5.1.1.2) and the changes related to the estimation of the Variation
Margin Outflows (described in Sections 4.2.5.1.1.3, 4.2.5.1.2.1,
4.2.5.1.3.1, 4.2.5.1.3.2 and 4.2.5.1.4).
--Section 4.3: All the changes reflect the new branding of CC&G
(Euronext Clearing). No change in the methodology or procedure applied
by LCH.
Section 5, Model Performance Testing and Ongoing Monitoring, will
be revised to provide throughout that the length of time for which LCH
SA must maintain liquidity resources sufficient to meet its liquidity
requirements for each service will be extended from five (5) days to
seven (7) days.\33\ In addition, Section 5.1, Ongoing Monitoring, will
be revised to provide that cash or non-cash collateral available for
pledge to the BdF should represent at least 25 percent (25%) of LCH
SA's available liquid resources after the default of its most
significant Clearing Member. This section currently provides that cash
alone should represent at least 25 percent (25%) of LCH SA's available
liquid resources after the default of its most significant Clearing
Member. This change will align the text of the Framework to the updated
text of the Liquidity Policy approved in 2022.
---------------------------------------------------------------------------
\33\ See, Section 5.1, Ongoing Monitoring, Section 5.3, Reverse
Stress Test, and Section 5.3.1, Independent stress of various risk
factors.
---------------------------------------------------------------------------
Section 5.3 on Reverse Stress Tests will be modified to include a
paragraph providing the regulatory requirements pursuant to SEC Rule
17Ad-22(e)(7)(vi)(B) \34\ and SEC Rule 17Ad-22(e)(7)(vi)(C).\35\
---------------------------------------------------------------------------
\34\ 17 CFR 240.17Ad-22(e)(7)(vi)(B).
\35\ 17 CFR 240.17Ad-22(e)(7)(vi)(C).
---------------------------------------------------------------------------
Consistent with this change, Section 5.3.1, Independent stress of
various risk factors, which describes the single factor reverse stress
test (or `core' reverse stress test), which examines the stress on
liquidity outflows caused by different risk factors that are
independently stressed (one signle factor at time) to assess extreme
market conditions necessary to observe a breach of the LCR limit will
be revised as follow:
<bullet> Risk Factor 1: Liquid Assets Reduction
It will be stated that non-cash collateral deposited by Clearing
Members and eligible for pledge at the BdF represents another primary
source of liquidity for LCH SA.
The sentence `A primary source of liquidity for a CCP is from
investments maturing management by the CaLM team at the opening of the
day' will be revised to `A primary source of liquidity for a CCP is
from investments maturing management performed by the CaLM team at the
opening of the day'.
The sentence `The overall liquid asset is reduced to obtain the
stress required to reduce the LCR below 100%' will be revised to `The
overall liquid assets are reduced to obtain the stress required to
reduce the LCR below 100%'.
The changes described will improve the accuracy and clarity of the
document and do not represent a change in the methodology or procedure
of LCH SA.
Moreover it will be stated that the reduction in assets necessary
to breach the LCR will be compared against the 7 days historical data
in order to assess the plausibility of the scenario rather than the 5
days historical data currently reported. The change has the purpose of
aligning the time horizon of the reverse stress with the time horizon
of the LCR (described in Section 4.2.1).
<bullet> Risk Factor 2: Switches to Non ECB Eligible Assets
It will provide that when calculating the single factor reverse
stress test that simulates a switch of collateral from ECB eligible
assets to non-ECB eligible assets such that a liquidity breach occurs,
the non-ECB eligible assets includes GILT or US bonds, Central Bank
guarantee, equities, non-Euro non cash collateral, and pledge
collateral. The addition of pledge collateral to the list will improve
the accuracy and clarity of the document and does not represent a
change in the methodology or procedure of LCH SA.
The required amount of switches necessary to produce a liquidity
breach will be compared against the 7 days historical data rather than
the 5 days historical data currently reported in the Framework. The
change has the purpose of aligning the time horizon of the reverse
stress to the tme horizon of the LCR.
<bullet> Risk Factor 3: Rating Downgrade of the Euro Zone Peripheral
and Core Countries
The sentence `This reverse stress test aims at modelling the
downgrade of the relevant countries and estimate the theoretical ECB
haircuts generating a liquidity shortfall' will be revised to `This
reverse stress test aims at modelling the downgrade of the relevant
countries and estimate the theoretical ECB haircuts needed to generate
a liquidity shortfall'.
The change described will improve the accuracy and clarity of the
document and does not represent a change in the methodology or
procedure of LCH SA.
<bullet> Risk Factor 6: CC&G VM
The subparagraph will be renamed Risk Factor 6: CC&GEuronext
Clearing VM to reflect the updated name of the interoperable CCP.
The sentence `The direction of the position' will be revised to
`The direction of the positions'.
The change described will improve the accuracy and clarity of the
document and does not represent a change in the methodology or
procedure of LCH SA.
Moreover it will be stated that this specific reverse stress test
aims to asses the amount of VM fails by the interoperable CCP during 7
days that could generate a liquidity shortfall rather than 5 days as
currently reported in the Framework. The change has the purpose of
aligning the time horizon of the reverse stress to the tme horizon of
the LCR.
<bullet> Risk Factor 7: Multiple Defaults
The sentence `Given that liquidity requirements are sized to a
cover 2 standard, is it plausible that more than 2 members defaults who
could lead to a liquidity deficit' will be revised to `Given that
liquidity requirements are sized to a cover 2 standard, is it plausible
that more than 2 member Groups defaults who could lead to a liquidity
deficit'.
In addition, the sentence: ``In order to answer this question, LCH
SA ranks order Members Groups based on their ICS and starting from the
ones with the worst ICS (and hence highest probabilities of default)''
will be revised to read: ``In order to answer this question, LCH SA
ranks Members Groups based on their ICS and starts considering the ones
with the worst ICS (and hence highest probabilities of default)''.
Finally it will be added that all Clearing Member Groups with a
credit score of 6 or higher will be considered in the reverse stress
test. The changes described will improve the accuracy and clarity of
the document and does not represent a change in the methodology or
procedure of LCH SA.
Section 5.3.2.1, Context & Objective, will be revised to provide
that the combined reverse stress test scenarios \36\ that include
multiple risk factors will be
[[Page 1961]]
performed at least quarterly. The purpose of the change is to align the
frequency of combined reverse stress stress described in the framework
to the one state in the Liquidity Risk Policy.
---------------------------------------------------------------------------
\36\ Combined reverse stress test scenario are known as ``non
core''. Please refer to change to Section 1.4 described previously
herein.
---------------------------------------------------------------------------
Section 5.3.2.2, Behavioural scenario, will be revised to provide a
more updated example of report layout. The change will increase the
accuracy and clarity of the document and does not represent a change in
the methodology or procedure of LCH SA.
Section 5.3.2.3, Macro-economic scenario, describes the reverse
stress test, which examines the stress on liquidity outflows caused by
a set of macro-economic scenarios that combine market, credit and
concentration risk to determine the number of defaults that LCH SA can
sustain in a shocked macro-economic environment until it suffers a
liquidity shortfall. This section will be revised, in part, to clarify
that the market risk driving scenarios will be selected from the
scenarios used to calculate LCR in accordance with the logic described
in Section 4.2.5.4. The current Framework considers only 2
macroeconomic scenarios that will be replaced by the new set of
scenarios dscribed in Appendix 6.7. Additional external rating
downgrade will be considered on top of the selected market risk
scenario as it is the case of the current Framework.
Moreover, the Operational outflow considered in the scenario will
be aligned to the calculation of the Operational Target and therefore
assuming a margin reduction of 24.7% over 7 days.
The changes will improve the liquidity monitoring of LCH SA by
aligning the reverse stress test calculation to the changes proposed
for the LCR and described in Sections 4.1.5g, 4.2.5.3, 4.2.5.4, and
Appendix 6.7.
This Section will also be revised to provide that LCH SA will
consider Clearing Member Groups, rather than individual Clearing
Members, when simulating the multiple defaults driven by credit quality
criteria, concentration criteria or total liquidity exposure criteria
as this Section currently provides. The changes will improve the
accuracy and clarity of the document and does not represent a change in
the methodology or procedure of LCH SA.
<bullet> Multiple Defaults Based on the Credit Quality of the Member
Groups
The sentence `By expanding the analysis presented on the individual
risk factor 8 this case highlights the evolution of the LCR for each
macro-economic scenario' will be revised to `By expanding the analysis
presented on the individual risk factor 7 this case highlights the
evolution of the LCR under the driving macro-economic shock scenario'.
The change has the purpose of correcting a typo and alignin the
description to the new computation of the driving macroeconomic
scenario described above.
Moreover, the example table that reports a sample of member Groups
and their respective liquidity needs will be updated to anonymize the
name of each Group.
<bullet> Multiple Defaults of the Most Concentrated Countries (FR & US
Member Groups)
The sentence `More specifically, we assume that the Macro-Eco 2
scenario (Peripheral shock accompanied with a contagion on core
countries) affects French and the European entities of the US members
(two different simulations)' will be revised to `More specifically, we
assume that the Driving macro economic scenario affects French and the
European entities of the US members (two different simulations)'. The
change will align the description to the new computation of the driving
macroeconomic scenario described above.
Moreover, the various report examples reported in this section
displaying the multiple defaults of member Groups from most
concentrated countries will be updated \37\ to provide a more recent
example of report layout. The change will increase the accuracy and
clarity of the document and does not represent a change in the
methodology or procedure of LCH SA.
---------------------------------------------------------------------------
\37\ Figures as of October 2022.
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<bullet> Default of the Biggest Member Groups in Terms of Liquidity
(Cover N)
The report example reported in this section displaying the default
of the biggest Member Groups in terms of liquidity will be updated \38\
to provide a more recent example of report layout. The change will
increase the accuracy and clarity of the document and does not
represent a change in the methodology or procedure of LCH SA.
---------------------------------------------------------------------------
\38\ Id.
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Section 5.3.3 is being added to the Framework in order to include
provisions governing frequency and reporting. This section specifies
that LCH SA performs core reverse stress tests at least on a monthly
basis and that the results of the analysis are shared with the CRO on a
monthly basis and quarterly to LCH SA Risk Committee.
LCH SA also performs an ad-hoc analysis of the existing stress
testing scenarios, models, and underlying parameters and assumptions
used in evaluating liquidity needs and resources through the core
reverse stress tests exercise (i) when the products cleared or markets
served display high volatility or become less liquid, (ii) when the
size or concentration of positions held by the clearing agency's
participants increases significantly, or (iii) in any other appropriate
circumstances that would lead to a liquidity coverage ratio falling
below the alert threshold of 107%. The ad-hoc analysis triggered by a
liquidity coverage ratio falling below 107% are reported to LCH SA CRO,
the Head of LCH SA Collateral and Liquidity Management division and to
the LCH SA Risk Committee.
Section 5.5, Testing Summary and Model Limitation, will be revised
to add a footnote to provide that single factor reverse stress tests
are performed monthly. Single and combined reverse stress tests are
performed quarterly. These requirements come from the LCH Liquidity
Risk Policy.
Appendix 6.2, Members behavior analysis, that analyses the
assumptions used in calculation the Operational Target and the LCR will
be revised to provide that the volume of the non-ECB eligible non cash
collateral (mainly Gilts, U.S. Treasury securities, securities
denominated in Danish Krone, Norwegian Krone, Swedish Krona, Japanese
Yen, Swiss Francs, Canadian Dollars and Australian Dollars and Central
Bank Guarantee) will remain at a level that does not downgrade LCH SA
liquidity profile (i.e., quarterly reverse stress test) and that LCH SA
imposes concentration limits on non-Euro non cash collateral. The
change will enhance the accuracy and clarity of the document and does
not represent a change in the methodology or procedure of LCH SA.
Moreover, this Appendix will be revised to specify that the margin
reduction is estimated at 24.7% over 7 days assuming that the daily
margin reductions are independent (sum of the daily margin reduction
vs. 7 days margin reduction). This level is bigger than the historical
margin reduction over 7 days observed over a 10-year lookback period.
This change has the purpose of updating the Appendix to be coherent
with the changes described is Section 4.1.5 and driven by the necessity
to address a model validation recommendation. Finally the graph
reporting the LCH SA total margin is updated to provide a more recent
orverview of the data.
Appendix 6.3, Reminder of SA's sources of liquidity and related
risk drivers, will be revised to update the table to include as a risk
driver the
[[Page 1962]]
pledge collateral. In particular it will provide that because of higher
concern toward LCH SA, the Clearing Members may increase their use of
the pledge collateral capacity. This behavior is modelled in the LCR.
Moreover, LCH SA may adjust the maximum limit allowed in pledge.
The change will align the Appendix with what presented in Section
4.2.5.2.4 and highlighted above.
In addition, when reporting the cash settlement option in case of
Euronext Clearing default, the following footnote will be updated to
read: ``There is a residual risk (uncertainty--delay/amount--with
regards SA's margins return by Euronext Clearing administrator)''. The
footnote is amended following the completion by LCH SA of its review of
risk drivers and related mitigation measures for cash received from
Euronext Clearing.
Appendix 6.4, Liquidity risk drivers synthesis by reports, will be
revised to update the table summarizing the components of each
liquidity indicator (Operational Target, LCR Cover 2 and LCR Euronext
Clearing) to reflect the fact that the liquidity monitoring period will
be extended from 5 days to 7 days and that the overall margin reduction
considered is 24.7%. Moreover, for LCR Cover 2, the Appendix will
provide that when calculating the settlement obligation and the
resulting BdF liquidity, the securities pledge will take into account
ECB haircut and market stress, and when estimating excess reduction LCH
SA will consider only non-defaulting Clearing Members as LCH SA has the
right to use for liquidity purposes any amounts left in excess from a
defaulting Clearing Member.
Appendix 6.5, Liquidity risk monitoring report, will be updated by
including the more recent layout versions of liquidity reports used by
the DCO to monitor liquidity. The change will improve the accuracy and
clarity of the document and does not represent a change in the
methodology or procedure of LCH sA.
Appendix 6.7, Stress scenarios list, will be added to report the
specific list of stress scenarios used for each service.
Appendix 6.8, Pseudo-code of settlement and market risk
calculation, will be added to provide the details on the algorithm used
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 translate into a pseudo code the algorithm described in detail
in sections 4.2.5.1.1.1 (liabilities contractual obligations on
physical delivery) and 4.2.5.1.1.2 (settlement securities pledged at
Central Bank). Different steps of computation are described covering
both liabilities and assets and the resulting aggegations to get the
finale outputs. The Appendix has the purpose of providing a technical
overview of the implementation of the algorithm described in the
referred sections and duly commented in the present 19b4. Please refer
to such sections for a theorical decription of the methodology.
Finally in the whole Framework the name of the interoperable CCP
have been updated from ``Cassa di Compensazione e Garanzia (CC&G)''
into ``Euronext Clearing''.
2. Statutory Basis
LCH SA has determined that the Proposed Rule Change is consistent
with the requirements of Section 17A of the Act \39\ and regulations
thereunder applicable to it. In particular, Section 17A(b)(3)(F) of the
Act requires, inter alia, that the rules of a clearing agency should be
designed to ``promote the prompt and accurate clearance and settlement
of securities transactions . . . and, to assure the safeguarding of
securities and funds which are in the custody or control of the
clearing agency or for which it is responsible[.]'' \40\ In addition,
Regulation 17Ad-22(e)(7)(ii) \41\ requires a covered clearing agency to
establish, implement, maintain and enforce written policies and
procedures reasonably designed to assure that it holds qualifying
liquid resources sufficient to meet the minimum liquidity resource
requirement in each relevant currency for which the covered clearing
agency has payment obligations owed to clearing members.
---------------------------------------------------------------------------
\39\ 15 U.S.C. 78q-1.
\40\ 15 U.S.C. 78q-1(b)(3)(F).
\41\ 17 CFR 240.17Ad-22(e)(7)(ii).
---------------------------------------------------------------------------
As discussed above, the Framework is being amended primarily to
enhance the manner in which the LCR is calculated, thereby increasing
the robustness of LCH SA's liquidity profile. In particular, the
amendments will: (a) revise the manner in which the settlement
obligation is calculated by aligning it to the actual process used by
the Operations Team during a default management and ensuring that no
netting is allowed between Members of the same Group; (b) revise the
manner in which securities pledged to the Banque de France are valued
by providing that such securities be valued at the stressed mark-to-
market price rather than the contract price; (c) extend from five (5)
days to seven (7) days 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 the liquidity
monitoring; and (e) require LCH SA, in calculating its required
liquidity resources, to take into account that Clearing Members may
switch from depositing non-cash collateral in a Full Title Transfer
Account, which may be pledged at the BdF to obtain a liquidity line of
credit, to depositing non-cash collateral instead in a Pledge Account.
By enhancing the manner in which the LCR is calculated, thereby
increasing the robustness of LCH SA's liquidity profile, the policies
and procedures set out in the amended Framework are designed to promote
the prompt and accurate clearance and settlement of securities
transactions and continue to assure the safeguarding of securities and
funds that are in LCH SA's custody or control or for which it is
responsible to be consistent with the requirements of Section
17A(b)(3)(F) of the Act.\42\ Specifically, the Proposed Rule will
revise the manner in which the settlement obligation liquidity
requirements are calculated, revise the manner in which securities
pledged at the BdF are valued, extend the length of time LCH SA must
maintain its liquidity resources, include the liquidity needs from the
expiration of physically settled stock futures and account for in the
way LCH SA calculates its liquidity resources, the process by which
Clearing Members pledge non-cash collateral. Further, the amended
Framework continues to assure that LCH SA holds qualifying liquid
resources sufficient to meet the minimum liquidity resource requirement
in each relevant currency for which the covered clearing agency has
payment obligations owed to Clearing Members, as required by Regulation
17Ad-22(e)(7)(ii).\43\
---------------------------------------------------------------------------
\42\ 15 U.S.C. 78q-1(b)(3)(F).
\43\ 17 CFR 240.17Ad-22(e)(7)(ii).
---------------------------------------------------------------------------
LCH SA also believes that the Proposed Rule Change is consistent
with Exchange Act Rule 17Ad-22(e)(1) \44\ that requires a covered
clearing agency to 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. As described
above, the Proposed Rule Change will ensure that the Framework complies
with the provisions of SEC Rule 17Ad-
[[Page 1963]]
22(e)(7) \45\ with respect to liquidity risk, including with respect to
its requirement to determine the amount and regularly test the
sufficiency of the liquid resources held for purposes of meeting the
minimum liquid resource requirement.\46\
---------------------------------------------------------------------------
\44\ 17 CFR 240.17Ad-22(e)(1).
\45\ 17 CFR 240.17Ad-22(e)(7).
\46\ 17 CFR 240.17Ad-22(e)(7)(vi).
---------------------------------------------------------------------------
Finally, LCH SA believes that the Proposed Rule Change is
consistent with Exchange Act Rule 17Ad-22(e)(7)(vi)(B) \47\ and
Rule17Ad-22(e)(7)(vi)(C).\48\ Rule 17Ad-22(e)(7)(vi)(B) requires a
covered clearing agency 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 the covered clearing agency, including measuring, monitoring,
and managing its settlement and funding flows on an ongoing and timely
basis, and its use of intraday liquidity by . . . [d]etermining the
amount and regularly testing the sufficiency of the liquid resources
held for purposes of meeting the minimum liquid resource requirement
[as required by SEC Rule 17Ad-22(e)(7)(i)] by establishing requirements
for conducting monthly comprehensive analyses of stress testing
scenarios, models, parameters and assumptiosn with respect to liquidity
needs.\49\ Rule 17Ad-22(e)(7)(vi)(C) further provides that LCH SA
conduct such analyses more frequently than monthly, ``the products
cleared or markets served display high volatility or become less
liquid, when the size or concentration of positions held by [LCH SA's]
participants increases significantly.'' \50\
---------------------------------------------------------------------------
\47\ 17 CFR 240.17Ad-22(e)(7)(vi)(B).
\48\ 17 CFR 240.17Ad-22(e)(7)(vi)(C).
\49\ 17 CFR 240.17Ad-22(e)(7)(vi)(B).
\50\ 17 CFR 240.17Ad-22(e)(7)(vi)(C).
---------------------------------------------------------------------------
LCH SA is proposing to amend the Framework to reflect its current
practice of conducting monthly analysis of its existing stress testing
scenarios, models, and underlying parameters and assumptions used in
evaluating liquidity needs and resources for purposes of ensuring they
are appropriate for determining the LCH SA's identified liquidity needs
and resources in light of current and evolving market conditions. LCH
SA is also proposing to amend the Framework to include the additional
requirement that it conduct more frequent analysis when the products
cleared or markets served display high volatility or become less
liquid, when the size or concentration of positions held by LCH SA's
participants increases significantly, or in other appropriate
circumstances. By revising the Framework to reflect its current
practice of conducting monthly analysis and including the requirement
to conduct more frequent analysis, subject to certain conditions, LCH
SA believes that the Proposed Rule Change is therefore consistent with
Exchange Act Rule 17Ad-22(e)(7)(vi)(B) \51\ and Rule 17Ad-
22(e)(7)(vi)(C).\52\
---------------------------------------------------------------------------
\51\ 17 CFR 240.17Ad-22(e)(7)(vi)(B).
\52\ 17 CFR 240.17Ad-22(e)(7)(vi)(C).
---------------------------------------------------------------------------
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.\53\ LCH SA does
not believe the Proposed Rule Change would have any impact, or impose
any burden, on competition. The Proposed Rule Change does not address
any competitive issue or have any impact on the competition among
central counterparties. LCH SA operates an open access model, and the
Proposed Rule Change will have no effect on this model.
---------------------------------------------------------------------------
\53\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------
C. Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants or Others
Written comments relating to the Proposed Rule Change have not been
solicited or received. LCH SA will notify the Commission of any written
comments received by LCH SA.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove such proposed rule change, or (B)
institute proceedings to determine whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act.
Comments May Be Submitted by Any of the Following Methods
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>) or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#5123243d347c323e3c3c343f2522112234327f363e27"><span class="__cf_email__" data-cfemail="7f0d0a131a521c1012121a110b0c3f0c1a1c51181009">[email protected]</span></a>. Please include
File Number SR-LCH SA-2023-007 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-LCH SA-2023-007. 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 (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>). 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 such filings will also be available for
inspection and copying at the principal office of LCH SA and on LCH
SA's website at <a href="https://www.lch.com/resources/rulebooks/proposed-rule-changes">https://www.lch.com/resources/rulebooks/proposed-rule-changes</a>.
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-2023-007 and
should be submitted on or before February 1, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\54\
---------------------------------------------------------------------------
\54\ 17 CFR 200.30-3(a)(12).
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Christina Z. Milnor,
Assistant Secretary.
[FR Doc. 2024-00383 Filed 1-10-24; 8:45 am]
BILLING CODE 8011-01-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.