Notice2026-07492
Self-Regulatory Organizations; LCH SA; Notice of Filing of Proposed Rule Change Relating to the CDSClear Risk Framework
Primary source
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Published
April 17, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 74 (Friday, April 17, 2026)</title>
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[Federal Register Volume 91, Number 74 (Friday, April 17, 2026)]
[Notices]
[Pages 20750-20755]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-07492]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-105233; File No. SR-LCH SA-2026-001]
Self-Regulatory Organizations; LCH SA; Notice of Filing of
Proposed Rule Change Relating to the CDSClear Risk Framework
April 14, 2026.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Exchange Act'' or ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on April 8, 2026, 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, as described in Items I, II and III below, which Items
have been prepared primarily by the clearing agency. 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 modify its CDS Clearing risk framework by
amending the (i) CDSClear Margin Reference Guide (the ``Margin Guide'')
and (ii) CDSClear Default Fund Reference Guide (the ``Stress Guide'')
to incorporate and accommodate the proposed changes and also adopt the
new common LSEG template (the ``Proposed Rule Change'').
The text of the Proposed Rule Change has been annexed as Exhibit
5.\3\
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\3\ All capitalized terms not defined herein have the same
definition as in the Rule Book or Procedures, as applicable.
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The implementation of the Proposed Rule Change will be contingent
on LCH SA's receipt of all necessary regulatory approvals.\4\
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\4\ The Proposed Rule Change was already approved by the French
competent authorities and Emir College under the procedure for EMIR
Article 49 (ESMA91-1505572268-4323 Final Report on EMIR 3 RTS model
validations) and also rule certified with the CFTC
(rules02252639859.pdf)
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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 Risk Policies and discussed
any comments it received on the Risk Policies. The text of these
statements may be examined at the places specified in Item IV below.
[[Page 20751]]
LCH SA has prepared summaries, set forth in sections A, B, and C below,
of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Proposed Rule change is being adopted by LCH SA to amend the
risk framework of its CDSClear service to address certain LCH SA Model
Validation Team recommendations issued originally from an independent
regular annual review performed in 2020 related to the lookback period
as part of the Spread Margin calculation, in particular a request to
introduce a fixed size of the lookback period to avoid dilution risk
which may arise in an ever growing lookback period if only mild
scenarios are added and the average over an ever growing number of
worst case scenarios is progressively trending downwards. LCH SA is
also proposing to amend the stress scenario definitions to ensure all
scenarios are plausible. This stress scenario change is expected to
lead to a significant decrease in the Default Fund as most existing
scenarios are shown to exceed the once-in-thirty-year event threshold
defined in the LCH SA Financial Risk Adequacy Policy,\5\ therefore
leading to a currently overconservative Default Fund. LCH SA will still
meet or exceed the 99.7% coverage target for all members and will still
be able to withstand the default of the two simultaneous defaults of
the largest member groups under extreme but plausible market
conditions. To effectuate these changes, LCH SA is proposing to amend
its Margin Guide and its Stress Guide to accommodate those proposed
changes. LCH SA is also proposing to restructure and reorganize the
contents in each document to conform with a common template adopted by
LSEG entities.\6\ This common template aims to make it easier for model
validation teams to review all models across LSEG.
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\5\ See Exchange Act Release No. 104051 (Sept. 25, 2025), 90 FR
47001 (Sept. 30, 2025) (SR-LCH SA-2025-007), which approved the LCH
SA Financial Risk Adequacy Policy.
\6\ LCH SA is a wholly owned subsidiary of LCH Group Holdings
Limited which is majority owned by London Stock Exchange Group plc
(LSEG), and therefore LCH SA is part of the LSEG group.
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Specifically, LCH SA is proposing to modify the Spread Margin
calculation to:
<bullet> reduce the size of the lookback period;
<bullet> reduce the weight given to the current volatility when
rescaling historical returns;
<bullet> change the risk measure for the spread margin floor to be
a VaR;
<bullet> consider profit and loss (``P&L'') over five days in each
scenario of the spread margin; and
<bullet> adjust historical returns from 2007 to make them more
relevant to current market regime.
LCH SA is also proposing to modify the stress scenario definitions
to ensure all scenarios are plausible.
LCH SA has determined that LCH SA's CDS Clearing Rules currently
appropriately describe the Proposed Rule Change and, therefore, no
change in the legal documentation is necessary. However, to accommodate
those proposed changes, LCH SA is proposing to amend the Margin Guide
and the Stress Guide as follows.
a. The Margin Guide
LCH SA is proposing to amend the Margin Guide to incorporate
changes related to the Spread Margin to address the dilution risk
mentioned earlier in the document, and replace the ever-growing
lookback period by one with a fixed size. The lookback will always be
composed of a stressed period and a 10-year rolling window. This
stressed period is July 2007 to June 2010 in the current proposal but
would be reviewed every year as part of the annual model validation. To
anticipate the potential disappearance of significant dates, the
proposed changes are also accompanied by a new annual test which would
assess the impact on the spread margin of removing the oldest year of
the 10-year rolling window. LCH SA is proposing to make other
clarifying and conforming changes as part of the transfer to the new
LSEG template. The proposed changes to the Risk Framework are as
follows:
<bullet> Section 4.7.4 introduces the concept of a 10-year rolling
lookback window, joined with a fixed three-year period also included in
the lookback, as well as the treatment applied to historical data from
2007, covering two of the five changes listed above in impacting the
Spread Margin, namely reduce the size of the lookback and adjust
historical returns from 2007 to make them more relevant to the current
market regime. The proposed change in the lookback period would apply
to both the scaled and unscaled model, in order to ensure that the
sample does not grow over time.
<bullet> LCH SA proposes to update the 10-year rolling window
daily, with one day from the previous 10 years dropping and the most
recent day being added. This addresses the dilution risk originally
flagged by the model validation team while recognizing the regime
change observed during the period.
<bullet> Section 5.2.4.2 replaces the Expected Shortfall measure by
a VaR measure for the Spread Margin floor using unscaled returns, as
part of the Proposed Rule Change. In other words, the core spread
margin calculation that is using volatility scaled returns is still
using an Expected Shortfall measure, but the Spread Margin floor is
moving from Expected Shortfall to VaR. As a consequence, the Spread
Margin will move from being the max between an Expected Shortfall using
volatility scaled returns and an Expected Shortfall using unscaled
returns to being the max between an Expected Shortfall using volatility
scaled returns and a VaR using unscaled returns. This simplifies the
floor, ensures the main model is driving the margin more often, and
aligns with general market practice for a regulatory floor.
<bullet> Spread margin scenarios currently retain the worst end of
day point over the 5-day period of the calculation. Section 5.2.4.1.5
shows a P&L calculated between business date and business date plus
five, reflecting the fact that the P&L will now be calculated as at the
five-day P&L. This significantly reduces the complexity of the
calculations and therefore helps speed up the margin calculations, so
that CDSClear can confirm within the regulatory timeframe whether a
trade sent for clearing is accepted or rejected, as required by EU
MiFIR \7\ and U.S. CFTC \8\ regulations. This change allows us to
calculate only one P&L per scenario of the Expected Shortfall, instead
of calculating five P&Ls and taking the worst, which cuts down
calculation time with a minimal impact on the final margin.
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\7\ See Article 29 of Regulation (EU) No 600/2014 of the
European Parliament and of the Council of 15 May 2014 on markets in
financial instruments (MiFIR) and amending Regulation (EU) No 648/
2012 requiring authorized CCPs to establish effective systems,
procedures and arrangements to ensure that cleared derivatives
transactions are submitted and accepted for clearing on a straight-
through processing (``STP'').
\8\ See 17 CFR 39.12(b)(7)(ii) requiring a DCO to have rules
that provide that the DCO will accept or reject for clearing as
quickly after execution as would be technologically practicable if
fully automated systems were used, all contracts that are listed for
clearing by the DCO and are executed competitively on or subject to
the rules of a DCM or SEF.
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<bullet> Section 5.2.4.1.1 replaces the 50% weight given to the
current volatility with a 25% weight when rescaling returns before
applying them to create simulated spread scenarios, as part of
[[Page 20752]]
the Proposed Rule Change. This means that after having divided past
returns by the volatility observed on that past date to normalize the
return, it is now multiplied by a value equal to the sum of 25% of the
current volatility and 75% of the volatility on the past date
corresponding to the original return, instead of having both weights
set to 50%. This feature helps improve the procyclicality risk profile
of the Spread Margin as it gives less weight to the most recent
volatility and therefore decreases the impact renewed market volatility
may have on the margins.
<bullet> Section 5.2.4.1.6 amends the logic for applying jump to
default calculations ahead of an option exercise date, such that
defaults are assumed to happen after the credit spreads have moved and
the exercise decision has been taken. This simplification relates to
the change towards a five-day P&L, which leads to the short charge
calculation now only occurring on day five of each scenario, instead of
happening for each day of each scenario.
The remainder of the Risk Framework described in the Margin Guide
does not change the calculations. Some sections of the previous version
of the document have been copied as is, commented as ``No Change'' in
the Excel chart filed as Exhibit 3 that maps the sections of the
previous version of the Margin Guide to the sections of the new
version, while others have been rewritten for clarity. In this regard:
<bullet> A new Section ``Executive Summary'' is providing a high-
level view of the CDSClear Risk Framework to comply with the LSEG model
documentation template requirements.
<bullet> A new Section 1 is providing more context on the use and
purpose of the model to comply with the LSEG model documentation
template requirements.
<bullet> A new Section 2 is providing details of the model
limitations and compensating controls. Most were already existing and
documented elsewhere, and only one new limitation is introduced related
to the control put in place to monitor the potential removal of key
historical events from the 10Y rolling lookback window used in the
spread margin calculations.
<bullet> Old Section 3.1 giving a summary of multiple margins has
been removed to now separate margins into different sections to comply
with the LSEG model documentation template requirements.
<bullet> Section 4.7.2 is largely unchanged from the previous
Section 2.3.1, with a minor update to incorporate the description of
structural and contractual subordination for credit default swaps.
<bullet> Section 4.1 is based on the previous Section 2.3.4 but
expands to give more details of the market data processing upstream of
the margin calculations, in order to satisfy the requirements of the
new LSEG template.
<bullet> Section 5 introduces margins that were missing from the
summary table (Contingency Variation Margin a.k.a. CVM, Legal Entity
Identifier margin a.k.a. LEI, Net Capital Ratio, Credit Quality Margin
and Default Fund Additional Margin a.k.a. DFAM were missing).
<bullet> Section 5.1.4.1 rewrites the presentation of the different
combinations of the International Swaps and Derivatives Association
(``ISDA'') definitions and seniorities considered in the jump to
default scenarios, summarizing them all in a table, without changing
the calculation.
<bullet> Sections 5.1.4.3 and 5.2.4.3.5 clarify the treatment of
jump to default risk close to maturity dates to cover the risk that
bought protection via a CDS contract, index or single name, would not
be applicable for credit events happening after the maturity date of
the contract, not introducing any change in the calculation.
<bullet> Section 5.2.4.1.7.1 replaces the multiple tables of
combinations of defaults and recovery rates from the previous section
3.5.1 into a single condensed table to ease the reading, not
introducing any change in the calculation.
<bullet> Section 5.2.4.3.4 is modifying the split of Spread Margin
and Short Charge, without affecting the sum of both margins considered
together. Previous Section 3.5.6 was considering Spread Margin as an
Expected Shortfall calculation of its own, and the Short Charge as a
difference between (a) an Expected Shortfall considering continuous
market moves and jump to default risk jointly and (b) the Spread
Margin. This makes it difficult to decompose the margins as the worst
scenarios selected in (a) are not necessarily the same as the scenarios
selected in (b). To remedy this, the new Margin Guide will still
consider an Expected Shortfall covering market moves and jump to
default risk, but defines the Spread Margin as the part of the P&L
attributable to the market moves only, while the Short Charge
represents the incremental P&L attributable to jump to default risk
within the same Expected Shortfall, on the same worst scenarios. Also,
Spread Margin and Short Charge are now described together in one
section to better explain the interplay between the credit spread risk
and jump to default risk described in this paragraph.
<bullet> Section 5.4.4 is merging together the calculation for all
types of products instead of separating them into different subsection
to emphasize that the calculation logic remains the same.
<bullet> Section 5.5.4.1.1 simplifies the presentation of the Wrong
Way Risk shock applied and removes the distinction between systemic and
non-systemic entities from the definitions as the treatment is the same
for both in the margin calculations.
<bullet> Section 5.5.4.1.5. clarifies how the correlation used in
the wrong way risk calculation and the latest state of implementation
of the most recent change to the wrong way risk model in a footnote.
<bullet> Sections 5.6.4.1. and 5.6.4.2. give more details about the
purpose of each scenario defined in the Vega margin calculation.
<bullet> Section 5.7 describes the exact same calculation of
Liquidity charge that was previously documented but now adds the
clarifying sections required by the LSEG model documentation template
such as a model overview and a description of the model inputs and
outputs. It also introduces the official name of the relevant credit
indices instead of their commonly used names.
<bullet> Section 5.8 describes the same calculation of Accrued
Coupon Liquidation Risk margin that was previously documented with
additional changes needed to accommodate the LSEG model documentation
template.
<bullet> Section 5.9 describes the same calculation of Credit event
margin that was previously documented with additional changes needed to
accommodate the LSEG model documentation template.
<bullet> Section 5.10, which is based on Section 7 of the previous
Margin Guide, clarifies the use case for Contingency Variation Margin
(CVM). The margin is meant to cover the risk that Variation Margin (VM)
may not be paid at the next VM call, and calls for extra collateral
every time the expected VM call would be potentially larger than a
single day of price moves. This can happen:
[cir] For new trades, should the upfront be far from the current
market value, the initial VM payment can be large; or
[cir] When payment systems are closed. This is currently only
relevant for USD, as LCH SA is open for clearing on days when U.S.
banks are closed. In such a case, the VM that would have been expected
to be paid in the morning is instead converted in Euros and called as
CVM, to be released the next day when the USD VM can settle again.
<bullet> Section 5.11 describes the same calculation of Legal
Entity Identifier margin that was previously documented
[[Page 20753]]
with additional changes needed to accommodate the LSEG model
documentation template.
<bullet> Section 5.12 describes the same calculation of Net Capital
Ratio margin that was previously documented with additional changes
needed to accommodate the LSEG model documentation template.
<bullet> Sections 5.13 and 5.14 introduce margins that were covered
in Sections 3.1 and 3.2 of the Stress Guide (respectively Credit
Quality Margin and DFAM), without changing the calculations, to make it
clear that these are charged as part of the IM like all other margins
described in the Margin Guide. Section 5.14 however changes the order
in which the calculation steps are presented to enhance readability.
<bullet> Section 5.15 is based on previous Section 5 but removes
sections on coupon and upfront cashflows which are independent from the
risk model.
<bullet> Sections 6, 7 and 8 are generic sections introduced to
comply with the LSEG template requirements.
b. The Stress Guide
LCH SA is proposing to amend the Stress Guide to reflect the
proposed changes to the definition of stress scenarios. Some non-
substantive clarifications have also been proposed, at the request of
the Model Validation Team or as part of the transfer to the new LSEG
template. The proposed changes in the Stress Guide are as follows:
<bullet> Currently, the set of stress test scenarios have an
assumption of an extended holding period of, at a minimum, five days,
but this varies from one scenario to the next. As proposed, the newly
renumbered Section 5.1.1.1 would clarify that the holding period
considered in the calibration of stress scenarios is set to seven days
across all scenarios. LCH SA believes this change is necessary to bring
consistency between stress scenarios and make them more comparable to
each other.
<bullet> Section 5.1.4 is the main change compared to the previous
version, as it discards most of the old scenarios and introduces the
new ones:
[cir] Currently, the listed scenarios, such as those calibrated
around Lehman Brothers' 2008 collapse or Black Monday, do not satisfy
the definition of plausibility as described in the LCH Financial Risk
Adequacy Policy because of multipliers applied to the historical
shocks. As such, the proposed historical scenarios would be chosen as
plausible based on a defined set of consistent criteria across all
scenarios such that the worst historical stress can be captured
consistently across multiple periods, but without adding arbitrary
multipliers on top of historical moves which would push them beyond the
plausibility limit. One criterion is used for directional scenarios and
another for decorrelation scenarios, to identify the most significant
seven-day periods through history for both kinds of events. This means
historical moves such as the ones observed around the default of Lehman
Brothers or during the trigger of the Covid crisis are still captured
and reflected in the new set of historical scenarios.
[cir] Currently, theoretical scenarios are based on expert
judgment, with values which were deemed conservative enough to protect
the CCP but without clean quantification of how plausible the scenarios
were. As proposed, theoretical scenarios would rely on a multivariate
distribution calibrated on historical data to generate extreme but
plausible scenarios quantified as once-in-30 years events, in line with
LCH policies. The calibrated distribution is used to generate sample
joint returns across risk factors, which are then sorted based on
criteria representing key trading strategies to identify the most
extreme draws in the sample for each risk profile.
[cir] Scenarios for implied volatilities would keep the same
calibration but would be considered jointly with spread moves to better
capture the cross-effect of both risk factors on the option price.
<bullet> Section 5.1.4.2 aligns the handling of option exercise
with regular margins, assuming market moves happen first, then exercise
decisions are reflected in the calculation, and then the impact of
defaulting entities is considered.
The rest of the CDSClear risk framework described in the Stress
Guide does not change. Some sections of the previous version of the
document have been copied as is, commented as ``No Change'' in the
chart that maps the sections of the previous version of the Stress
Guide to the sections of the new version, while others have been
rewritten for clarity. In this regard:
<bullet> A new section ``Executive Summary'' is providing a high-
level view of the CDSClear Stress Risk Framework to comply with the
LSEG model documentation template requirements;
<bullet> A new Section 1 is providing more context on the use and
purpose of the model to comply with the LSEG model documentation
template requirements;
<bullet> A new Section 2 is providing information on the model
limitations and compensating controls to comply with the LSEG model
documentation template requirements;
<bullet> A new Section 3 is justifying the modelling approach to
comply with the LSEG model documentation template requirements;
<bullet> A new Section 4 is describing the modelling data to comply
with the LSEG model documentation template requirements;
<bullet> Section 5.1.1.2 summarizes the definition of the Default
Fund size in a more condensed manner, aligned with the LSEG template,
without introducing any change to the calculation.
Section 5.1.4.4 rewrites the logic of the stressed Short Charge in
the manner of the Short Charge in the Margin Guide, in particular
introducing tables to more clearly summarize the combinations of ISDA
definitions and seniorities that can default together and to summarize
the recovery rates used in the Net Short Exposure calculations, leading
to the corresponding deletions in Section 5.1.4.2.4 to avoid
duplication. This section therefore replaces the old Section 2.4.
Although the proposed changes to the Spread Margin are expected to
have a minimal impact, the changes to ensure all stress scenarios used
to size the Default Fund are plausible is expected to have a noticeable
impact, measured as a 41% decrease on average over the 12 month period
leading to March 2026, with the minimum decrease measured at 32% and
maximum decrease measured at 44%. As noted previously, this will not
prevent LCH SA from being able to withstand the default of the two
simultaneous defaults of the largest member groups under extreme but
plausible market conditions. In terms of distribution of the impact
across clearing members, all clearing members not triggering the
default fund contribution floor will see a decrease in their Default
Fund Contribution requirement of the same percentage as the allocation
key is based on initial margin which is only marginally changing. This
means that amongst members not triggering the default fund contribution
floor the larger clearing members currently contributing larger euro
amounts towards the Default Fund will see a larger euro amount of money
credit to them when the changes are implemented, with the largest
decrease in euros across the period equal to 605 million euros for the
largest member. The smallest members who were subject to a default fund
contribution floor set to 10 million euros would still be subject to
the same floor and would therefore not see any change in their
contribution amounts. In other words, all members would see the same
relative impact on their contribution, except if
[[Page 20754]]
their contribution is small enough that it is floored to 10 million
euros.
1. Statutory Basis
LCH SA has determined that the Proposed Rule Change is consistent
with the requirements of Section 17A of the Act \9\ and regulations
thereunder applicable to it, including Commission Rule 17ad-22(e).\10\
In particular, Section 17A(b)(3)(F) of the Act requires, inter alia,
that the rules of a clearing agency be designed to ``promote the prompt
and accurate clearance and settlement of . . . derivatives agreements,
contracts, and transactions''.\11\ Through the proposed change toward a
reduced lookback window and a five-day P&L, LCH SA is simplifying the
margin calculations without a significant impact on the margin coverage
expecting that this should promote the prompt and accurate clearance
and settlement of the CDSClear instruments in accordance with the
requirements of Section 17A(b)(3)(F) of the Act.\12\
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\9\ 15 U.S.C. 78q-1.
\10\ 17 CFR 240.17ad-22.
\11\ 15 U.S.C. 78q-1(b)(3)(F).
\12\ Id.
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Rule 17ad-22(e)(6)(i) requires a covered clearing agency to
establish, implement, maintain, and enforce written policies and
procedures reasonably designed, as applicable, to cover its credit
exposures to its participants by establishing a risk-based margin
system that, at a minimum considers, and produces margin levels
commensurate with, the risks and particular attributes of each relevant
product, portfolio, and market.\13\ LCH SA believes that the Proposed
Rule Change would enhance LCH SA's risk-based margin system by
improving the calculations with a revised volatility scaling which
would limit procyclicality and a reduced lookback window decreasing the
dilution of stressed periods and continuing to produce margin levels
commensurate with the risks as illustrated by the back-testing
performed on the new proposed model, which is fully consistent with the
requirements of Rule 17ad-22(e)(6)(i).\14\
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\13\ 17 CFR 240.17ad-22(e)(6)(i).
\14\ Id.
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Rule 17ad-22(e)(4) \15\ requires LCH SA to establish, implement,
maintain and enforce written policies and procedures reasonably
designed to effectively identify, measure, monitor, and manage its
credit exposures to participants and those arising from its payment,
clearing, and settlement processes, among other requirements. LCH SA
believes that the proposed changes that would apply with the new risk
model would continue to provide sufficient margin requirements to cover
its credit exposure to its clearing members from clearing such
contracts, consistent with the requirements of Rule 17ad-22(e)(4).\16\
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\15\ 17 CFR 240.17ad-22(e)(4).
\16\ Id.
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Rule 17ad-22(e)(4)(vi)(B) and (C) requires LCH SA to establish,
implement, maintain and enforce written policies and procedures
reasonably designed to effectively identify, measure, monitor, and
manage its credit exposures to participants and those arising from its
payment, clearing, and settlement processes, including by testing the
sufficiency of its total financial resources available to meet the
minimum financial resource requirements by, among other things,
conducting a comprehensive analysis on at least a monthly basis of the
existing stress testing scenarios, models, and underlying parameters
and assumptions; and conducting a comprehensive analysis of stress
testing scenarios, models, and underlying parameters and assumptions
more frequently than monthly when the products cleared or markets
served display high volatility or become less liquid, or when the size
or concentration of positions held by the covered clearing agency's
participants increases significantly.\17\ The Margin Guide and Stress
Guide, including the proposed changes, interact with and remain subject
to the Financial Resource Adequacy Policy (``FRAP'') that is part of
its governance framework.\18\ The FRAP contemplates monthly reverse
stress testing, and less than monthly under certain conditions, that is
consistent with the comprehensive analysis requirement of Rule 17ad-
22(e)(4)(vi)(B) and (C).\19\
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\17\ 17 CFR 240.17ad-22(e)(4)(vi)(B) and (C).
\18\ See supra note 3.
\19\ 17 CFR 240.17ad-22(e)(4)(vi)(B) and (C).
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Rule 17ad-22(e)(3) \20\ requires LCH SA to establish, implement,
maintain and enforce written policies and procedures reasonably
designed to maintain a sound risk management framework for
comprehensively managing legal, credit, liquidity, operational, general
business, investment, custody, and other risks that arise in or are
borne by the covered clearing agency. By adopting the new appropriate
LSEG template in accordance with the Group requirements and by also
addressing the LCH SA Model Validation Team recommendations for
enhancing it risk framework and meeting the relevant quality criteria
in accordance with the existing Model Validation Policy and procedure,
the Proposed Rule Change remains fully consistent with the requirements
of Rule 17ad-22(e)(3).\21\
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\20\ 17 CFR 240.17ad-22(e)(3).
\21\ Id.
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Rule 17ad-22(b)(3) requires, in relevant part, a clearing agency
for security-based swaps to establish, implement, maintain and enforce
written policies and procedures reasonably designed to maintain
financial resources ``sufficient to withstand, at a minimum, a default
by the two participant families to which it has the largest exposures
in extreme but plausible market conditions.'' \22\ As discussed above,
LCH SA is modifying the stress scenarios used to size the default fund
to ensure they remain plausible. In particular, the usage of a
quantitative approach to build market data shocks targeting the once in
30 years plausibility limit in line with LCH policies provide a clear
procedure to maintain financial resources sufficient to withstand
defaults in extreme but plausible market conditions. The actual sizing
of the Default Fund itself does not change, such that LCH SA is still
covering the default of two participant families to which it has the
largest exposures.
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\22\ 17 CFR 240.17ad-22(b)(3).
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For all the reasons stated above, LCH SA believes that the Proposed
Rule Change is consistent with the requirements of prompt and accurate
clearance and settlement of securities transactions in Section
17(A)(b)(3)(F) \23\ of the Act, the requirements of a risk-based margin
system in Rule 17ad-22(e)(6)(i) \24\ and of a sound risk management
framework in Rule 17ad-22(e)(3) \25\ with also the monitoring and
management of the credit exposures to participants in Rule 17ad-
22(e)(4),\26\ as well as with the requirements of 17ad-22(b)(3).\27\
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\23\ 15 U.S.C. 78q-1(b)(3)(F).
\24\ 17 CFR 240.17ad-22(e)(6)(i).
\25\ 17 CFR 240.17ad-22(e)(3).
\26\ 17 CFR 240.17ad-22(e)(4).
\27\ 17 CFR 240.17ad-22(b)(3).
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B. Clearing Agency's Statement on Burden on Competition
Section 17A(b)(3)(I) of the Act requires that the rules of a
clearing agency not impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act.\28\ LCH SA does
not believe that the proposed rule change would have any impact, impose
burdens on competition that are not necessary or appropriate in
furtherance of the
[[Page 20755]]
purposes of the Act. Indeed, all clearing members would see the same
relative decrease in their default fund contribution so that all
clearing participants are treated equally, except if their default fund
contribution is small enough that it is subject to the 10 million euros
floor in which case the decrease could be smaller or even nil. The
Proposed Rule Change was discussed with the current Clearing Members
and would not affect their ability or of other market participants
generally to engage in cleared transactions or to access clearing
services. The Proposed Rule Change will have no effect on the open
access model maintained by LCH SA.
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\28\ 15 U.S.C. 78q-1(b)(3)(I).
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Therefore, LCH SA does not believe that the proposed rule change
would
impose a burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
C. Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants or Others
Written comments were not and are not intended to be solicited with
respect to the Proposed Rule Change and none have been received by LCH
SA.
III. Date of Effectiveness of the Proposed Rule Change
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove such proposed rule change, or (B)
institute proceedings to determine whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change, is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments:
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking">https://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking</a>);
or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#7c0e091019511f1311111912080f3c0f191f521b130a"><span class="__cf_email__" data-cfemail="6c1e190009410f0301010902181f2c1f090f420b031a">[email protected]</span></a>. Please include
file number SR-LCH SA-2026-001 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-2026-001. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="https://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking">https://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking</a>). Copies of the
filing will be available for inspection and copying at the principal
office of LCH SA and on LCH SA's website at <a href="http://www.lch.com/resources/rules-and-regulations/proposed-rule-changes-0">http://www.lch.com/resources/rules-and-regulations/proposed-rule-changes-0</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-2026-001 and
should be submitted on or before May 8, 2026.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
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\29\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-07492 Filed 4-16-26; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on April 17, 2026.
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.