Notice2026-11483
Self-Regulatory Organizations; LCH SA; Order Approving Proposed Rule Change Relating to the Extension of Eligible Collateral to U.S. Treasury Securities and Related Changes
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Published
June 9, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 110 (Tuesday, June 9, 2026)</title>
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[Federal Register Volume 91, Number 110 (Tuesday, June 9, 2026)]
[Notices]
[Pages 34864-34867]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-11483]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-105614; File No. SR-LCH SA-2026-003]
Self-Regulatory Organizations; LCH SA; Order Approving Proposed
Rule Change Relating to the Extension of Eligible Collateral to U.S.
Treasury Securities and Related Changes
June 4, 2026.
I. Introduction
On April 14, 2026, Banque Centrale de Compensation, which conducts
business under the name LCH SA (``LCH SA''), filed with the Securities
and Exchange Commission (the ``Commission''), pursuant to Section
19(b)(1) of the Securities Exchange Act of 1934 (the ``Act'') \1\ and
Rule 19b-4 thereunder,\2\ a proposed rule change to expand the types of
U.S. Treasury securities that it accepts as eligible collateral and
make related changes. The proposed rule change was published for
comment in the Federal Register on April 27, 2026.\3\ The Commission
did not receive comments regarding the proposed rule change. For the
reasons discussed below, the Commission is approving the proposed rule
change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 34-105287 (April 22,
2026), 91 FR 22566 (April 27, 2026) (File No. SR-LCH SA-2026-003)
(``Notice'').
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II. Description of the Proposed Rule Change
Background
LCH SA is a clearing agency registered with the Commission. Through
its CDSClear business unit, LCH SA provides central counterparty
(``CCP'') services for security-based swaps, including credit default
swaps
[[Page 34865]]
(``CDS'') and options on CDS. LCH SA is an affiliate of LCH, Ltd,
through common ownership by LCH Group Holdings Limited (``LCH Group'').
LCH SA's ultimate parent company is London Stock Exchange Group.
Part of LCH SA's CCP function is to interpose itself as the buyer
to every seller and the seller to every buyer for the CDS it clears. In
doing so, LCH SA is exposed to certain risks, including credit risk.
LCH SA is exposed to credit risk because a clearing member may default
on its obligations to LCH SA. A clearing member may also default on its
obligations arising from a CDS transaction, requiring LCH SA, as a CCP,
to perform those obligations in place of the defaulting clearing
member.
LCH SA manages credit risk by, among other things, requiring its
clearing members to provide initial margin and contribute to a default
fund. Clearing members satisfy these requirements by providing cash and
non-cash collateral to LCH SA. With respect to non-cash collateral, LCH
SA accepts a variety of different types of securities, which LCH SA
refers to as ``eligible margin collateral.'' LCH SA provides clearing
members a list of eligible margin collateral, and a list of the
haircuts and other limits that apply to such eligible margin
collateral, in a document entitled the Risk Notice Margin Eligible
Securities Collateral and Haircut Schedule (``Haircut Schedule'').
All eligible margin collateral is subject to certain conditions and
limitations. For example, LCH SA haircuts the value of eligible margin
collateral, to reflect potential costs and losses that it may incur in
liquidating the collateral. Eligible securities collateral is also
subject to overall concentration limits and limits based on the value
of a clearing member's margin requirement. These conditions and
limitations are set out in LCH SA's Collateral Risk Framework Reference
Guide (``CRF'') and List of LCH SA Acceptable Securities (``Acceptable
Securities List'').
LCH SA currently accepts, as eligible securities collateral, U.S.
Treasury Bills. LCH SA proposes to expand eligibility to include U.S.
Treasury Notes, Bonds, Floating Rate Notes (``FRNs''), and Treasury
Inflation-Protected Securities (``TIPS''). To do so, LCH SA is amending
the Haircut Schedule, Acceptable Securities List, and CRF.
LCH SA also is making other related changes and updates to the
Haircut Schedule, Acceptable Securities List, and CRF, as discussed
below.
Expansion of U.S. Treasury Securities as Eligible Margin Collateral
To expand the U.S. Treasury Securities that it accepts as eligible
margin collateral, LCH SA first is amending the Haircut Schedule.
Because LCH SA already accepts U.S. Treasury Bills, the Haircut
Schedule currently includes an entry for ``Debt securities issued by
the United States of America, Treasury Bills.'' The proposed rule
change adds below this entry, ``United States Treasury Note/Bond,''
``United States Treasury Inflation Protected Securities,'' and ``United
States Treasury Floating Rate Note (TF).'' The existing haircuts that
apply to U.S. Treasury Bills will apply to Treasury Notes, Bonds, and
FRNs. Moreover, LCH SA will establish a separate set of haircuts for
TIPs, organized per maturity bucket.
The Haircut Schedule contains other requirements that apply to
eligible margin collateral, and these requirements will apply to
Treasury Notes, Bonds, FRNs, and TIPs. For example, to be eligible
margin collateral, U.S. Treasury Bills must have at least a minimum
amount outstanding of $500 million per issuance. This minimum amount
requirement will apply going forward to Treasury Notes, Bonds, FRNs,
and TIPs. Moreover, like the Treasury Bills LCH SA currently takes, to
be acceptable the particular Treasury Note, Bond, FRN, or TIP must have
a remaining maturity of at least three business days and no more than
30 years. Finally, as currently noted in the Haircut Schedule, zero-
coupon instruments (other than T-bills); stripped securities; perpetual
bonds; and securities subject to specified corporate event features,
including callable, puttable, or sinkable features; are ineligible.
LCH SA is next amending the Acceptable Securities List. As noted
above, this document contains overall concentration limits for all
eligible margin collateral. In this document, LCH SA is establishing an
overall concentration limit of $2 billion for TIPS at the individual
clearing member and clearing member group levels.\4\ LCH SA states that
this limit is based on analysis of a hypothetical non-cash collateral
liquidation portfolio and a simulation of default management scenarios
involving liquidation through multiple counterparties.\5\
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\4\ This concentration limit also will be made available to
clearing members via LCH SA's LCH SA's Knowledge Center, which is a
portion of LCH SA's website that is only accessible to members. See
Self-Regulatory Organizations; LCH SA; Order Approving Proposed Rule
Change Relating to Collateral Concentration Limits, Exchange Act
Release No. 103242 (June 12, 2025), 90 FR 25730 (June 17, 2025) (SR-
LCH SA-2025-004).
\5\ Notice, 91 FR at 22567.
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LCH SA also is amending the CRF to reflect this expansion of
eligible margin collateral. Like the Acceptable Securities List, the
CRF contains requirements and criteria that apply to all eligible
margin collateral. For example, Section 5.8.7 of the CRF contains
overall concentration limits for non-Euro, non-cash collateral. LCH SA
applies these limits per clearing member, clearing member group, LCH
Group CCP, and ISIN (per issuance). LCH SA is lowering the
concentration limit that applies per ISIN of bonds issued by the U.S.,
from 25% to 20%. Although related to the expansion of eligible margin
collateral, LCH SA is making this change to address a model validation
action raised by LCH SA's independent model validation team.\6\
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\6\ Notice, 91 FR at 22568.
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Moreover, LCH SA is adding a new section 5.8.8 to the CRF. Section
5.8.8 describes how LCH SA may apply a relative limit on the total
amount of their collateral requirement that any clearing member can
meet using U.S. Treasury securities. For example, LCH SA could limit a
clearing member to satisfying half of its total margin requirement with
U.S. Treasury securities, meaning that a clearing member with a $10
million margin requirement could only use $5 million worth of U.S.
Treasury securities to satisfy that requirement.
LCH SA is setting this initial relative concentration limit to
100%. This means the limit is not intended to be binding because
clearing members could meet 100% of their collateral requirement using
the full set of U.S. securities. LCH SA may lower the limit as needed
to reduce its exposure to U.S. Treasury securities if liquidity or
other risk considerations require LCH SA to do so.\7\
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\7\ Notice, 91 FR at 22567.
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Finally, section 10 of the CRF contains a list of eligible margin
collateral organized by type and further by security. Under the list of
eligible government securities, U.S.A. is already included as an
accepted issuer because, as noted, LCH SA currently accepts U.S.
Treasury Bills. The list of countries for which LCH SA accepts
inflation protected securities does not include the U.S.A., however, as
LCH SA does not currently accept TIPS. To reflect the addition of TIPS
as eligible margin collateral, LCH SA is adding U.S.A. to list of
countries for which LCH SA accepts inflation protected securities.
[[Page 34866]]
LCH SA is making a similar change to Section 5.8.3 of the CRF as well.
Other Changes
In addition to the changes to expand the types of U.S. Treasury
securities that are eligible margin collateral, LCH SA also is making
updates to the CRF and knowledge center.
First, in section 4.1, which explains the sources of data that LCH
SA uses to obtain information about bonds, LCH SA is adding a note to
explain the backup source that it would use should its primary data
source become unavailable.
Second, Section 5.8.4 describes certain concentration limits that
apply to clearing members and that are measured per each issuance of a
particular bond. These concentration limits are categorized by Internal
Credit Score (``ICS'') of the issuer of the bonds. LCH SA is lowering
the concentration limit that applies per ISIN of bonds for certain
issuers. Specifically, for eligible issuers with an Internal Credit
Score (``ICS'') \8\ between 1 and 4, the ISIN-level concentration limit
would be reduced from 25% to 20% of the outstanding issuance amount.
LCH SA is making this change to address a model validation action
raised by the independent model validation team.\9\
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\8\ The ICS represents LCH SA's assessment of the risk of
investment with a particular counterparty or investing in a
particular issuer's securities. See Self-Regulatory Organizations;
LCH SA; Order Approving Proposed Rule Change Relating to LCH SA's
Default Management Policy, Investment Risk Policy, Liquidity Risk
Policy, Settlement, Payment and Custody Risk Policy, Model
Governance, Validation and Review Policy and Contract and Market
Acceptability Policy, Exchange Act Release No. 104980 (Mar. 12,
2026), 91 FR 12869, 12870-71 (Mar. 17, 2026) (SR-LCH SA-2025-010).
\9\ Notice, 91 FR at 22567.
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Similarly, in Section 5.8.6 and 5.8.7, LCH SA is adjusting the per
issuance limit for other issuers whose bonds are eligible margin
collateral. LCH SA is raising the concentration limit of Spain from 10%
to 20% to align with its updated ICS and the concentration limit of
International Bank for Reconstruction and Development Bonds from 10% to
15%. For France, UK, and Belgium, LCH SA is lowering the concentration
limit from 25% to 20%, consistent with the per ISIN limit for U.S.
Treasury securities.
Finally, LCH SA is updating the knowledge center on its website to
reflect these changes and to correct a typographical error.
III. Discussion and Commission Findings
Section 19(b)(2)(C) of the Act requires the Commission to approve a
proposed rule change of a self-regulatory organization if it finds that
the proposed rule change is consistent with the requirements of the Act
and the rules and regulations thereunder applicable to the
organization.\10\ Under the Commission's Rules of Practice, the
``burden to demonstrate that a proposed rule change is consistent with
the Exchange Act and the rules and regulations issued thereunder . . .
is on the self-regulatory organization [`SRO'] that proposed the rule
change.'' \11\
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\10\ 15 U.S.C. 78s(b)(2)(C).
\11\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR
201.700(b)(3).
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The description of a proposed rule change, its purpose and
operation, its effect, and a legal analysis of its consistency with
applicable requirements must all be sufficiently detailed and specific
to support an affirmative Commission finding,\12\ and any failure of an
SRO to provide this information may result in the Commission not having
a sufficient basis to make an affirmative finding that a proposed rule
change is consistent with the Exchange Act and the applicable rules and
regulations.\13\ Moreover, ``unquestioning reliance'' on an SRO's
representations in a proposed rule change is not sufficient to justify
Commission approval of a proposed rule change.\14\
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\12\ Id.
\13\ Id.
\14\ Susquehanna Int'l Group, LLP v. Securities and Exchange
Commission, 866 F.3d 442, 447 (D.C. Cir. 2017).
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After carefully considering the proposed rule change, the
Commission finds that the proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to LCH SA. More specifically, for the reasons given below,
the Commission finds that the proposed rule change is consistent with
Section 17A(b)(3)(F) of the Act,\15\ and Rule 17ad-22(e)(5) thereunder,
as described in detail below.\16\
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\15\ 15 U.S.C. 78q-1(b)(3)(F).
\16\ 17 CFR 240.17ad-22(e)(5).
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A. Section 17A(b)(3)(F)
Section 17A(b)(3)(F) of the Act requires, among other things, that
the rules of LCH SA be designed to promote the prompt and accurate
clearance and settlement of securities transactions and, to the extent
applicable, derivative agreements, contracts, and transactions, as well
as to assure the safeguarding of securities and funds which are in the
custody or control of LCH SA or for which it is responsible.\17\
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\17\ 15 U.S.C. 78q-1(b)(3)(F).
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As discussed above, the proposed rule change expands the list of
eligible margin collateral to include Notes, Bonds, FRNs, and TIPS.
This proposed change would expand the pool of high-quality liquid
assets available to clearing members to satisfy margin requirements
within LCH SA's CDSClear service. The proposed rule change provides
clearing members with additional options regarding the types of non-
cash collateral that may be posted to satisfy margin and default fund
requirements, consistent with member interest in expanding the
available collateral pool. The proposed rule change communicates these
changes to clearing members through updates to the Haircut Schedule and
the knowledge center portion of LCH SA's website. Expanding the
eligible margin collateral in this fashion provides clearing members
more options for meeting their margin and default funds requirements
and therefore may encourage the clearing of additional CDS at LCH SA,
promoting the prompt and accurate clearing and settlement of
transactions.
At the same time, LCH SA will apply haircuts dollar concentration
limits at the individual clearing Member and clearing member group
levels, consistent with its haircuts and concentration limits for other
issuers. LCH SA will continue to accept only liquid securities subject
to defined eligibility criteria, applicable haircuts, and concentration
limits intended to manage credit, market, and liquidation risk,
including in the event of a clearing member default. Subjecting Notes,
Bonds, FRNs, and TIPS to these same criteria and limits will help
ensure that LCH SA continues to accept continue to accept only high-
quality, liquid securities as eligible margin collateral, that can
serve as a financial resource to LCH SA in the event of a clearing
member's default.
In addition, LCH SA already accepts T-bills as eligible margin
collateral and would expand eligibility to include additional U.S.
Treasury securities with longer-dated maturities, floating rates, or
principal amounts periodically adjusted based on changes in the U.S.
Consumer Price Index. LCH SA would utilize its existing set of
counterparties to safeguard such securities in its custody and to
liquidate such securities if necessary, in connection with a clearing
member default, consistent with the safeguarding of securities which
are in the custody or control of LCH SA or for which it is responsible.
Accordingly, the Commission finds that the proposed rule change is
[[Page 34867]]
consistent with the requirements of Section 17A(b)(3)(F) of the
Act.\18\
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\18\ Id.
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B. Rule 17ad-22(e)(5)
Rule 17ad-22(e)(5) provides, among other things, that a covered
clearing agency limit the assets it accepts as collateral to those with
low credit, liquidity, and market risks, and set and enforce
appropriately conservative haircuts and concentration limits if the
covered clearing agency requires collateral to manage its or its
participants' credit exposure; and require a review of the sufficiency
of its collateral haircuts and concentration limits to be performed not
less than annually.\19\
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\19\ 17 CFR 240.17ad-22(e)(5).
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LCH SA currently limits the non-cash collateral it accepts to
government, supranational, and agency securities. The proposed rule
change would expand eligible margin collateral to additional U.S.
Treasury securities, beyond the T-Bills it already accepts. The
Commission finds the additional U.S. Treasury securities represent
collateral to with low credit, liquidity, and market risks.
Moreover, LCH SA will apply haircuts aligned with its existing
Haircut Schedule for U.S. Treasury securities, including higher
haircuts for TIPS, and fixed-dollar concentration limits at the
individual clearing member and clearing member group levels. LCH SA
reviews the sufficiency of its collateral haircuts and concentration
limits in accordance with the CRF. Applying its existing limits helps
ensure the additional eligible margin collateral are subject to
appropriately conservative haircuts and concentration limits, and
reviewing those limits will help ensure such limits are sufficient.
Although LCH SA is not yet setting a relative limit on the total amount
of their collateral requirement that any clearing member can meet using
U.S. Treasury securities, LCH SA may lower the limit as needed to
reduce its exposure to U.S. Treasury securities if liquidity or other
risk considerations require LCH SA to do so.
As noted above, LCH SA is also updating per ISIN concentration
limits for other issuers. Generally, these limits will be consistent
with the limit for U.S. Treasury securities at 20%. In some cases, the
limits will be more permissive than the current limits, but these
changes are due to an update to the issuer's ICS (Spain, for example).
Thus, these changes are also consistent with ensuring these issuers are
subject to appropriately conservative haircuts and concentration
limits.
Accordingly, the Commission finds that the proposed rule change is
consistent with the requirements of Rule 17ad-22(e)(5).\20\
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\20\ 17 CFR 240.17ad-22(e)(5).
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IV. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule change is consistent with the requirements of the Act,
and in particular, with the requirements of with Section 17A(b)(3)(F)
of the Act,\21\ and Rule 17ad-22(e)(5).\22\
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\21\ 15 U.S.C. 78q-1(b)(3)(F).
\22\ 17 CFR 240.17ad-22(e)(5).
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It is therefore ordered pursuant to Section 19(b)(2) of the Act
\23\ that the proposed rule change (SR-LCH SA-2026-003) be, and hereby
is, approved.\24\
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\23\ 15 U.S.C. 78s(b)(2).
\24\ In approving the proposed rule change, the Commission
considered the proposal's impact on efficiency, competition, and
capital formation. 15 U.S.C. 78c(f).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-11483 Filed 6-8-26; 8:45 am]
BILLING CODE 8011-01-P
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