Self-Regulatory Organizations; LCH SA; Order Approving Proposed Rule Change Relating to the LCH SA Liquidity Plan

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<title>Federal Register, Volume 91 Issue 161 (Friday, August 21, 2026)</title>
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[Federal Register Volume 91, Number 161 (Friday, August 21, 2026)]
[Notices]
[Pages 54427-54430]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-17061]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-106155; File No. SR-LCH SA-2026-004]


Self-Regulatory Organizations; LCH SA; Order Approving Proposed 
Rule Change Relating to the LCH SA Liquidity Plan

August 18, 2026.

I. Introduction

    On June 22, 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 submit for 
Commission approval the LCH SA Liquidity Plan (``Liquidity Plan''). The 
proposed rule change was published for comment in the Federal Register 
on July 9, 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\ Self-Regulatory Organizations; LCH SA; Notice of Filing of 
Proposed Rule Change Relating to the LCH SA Liquidity Plan, Exchange 
Act Release No. 105850 (July 6, 2026), 91 FR 42577 (July 9, 2026) 
(File No. SR-LCH SA-2026-004) (``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 (``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.
    As a CCP, LCH SA is exposed to certain risks, including liquidity 
risk. Liquidity risk is the risk that LCH SA will not have enough 
liquid financial resources to meet its financial obligations. LCH SA 
has adopted the Liquidity Plan to set out the specific principles and 
procedures for liquidity management that govern its operations as a 
clearing agency, including how it will ensure that systems and 
processes are in place to facilitate effective management of liquidity 
risk.
    The Liquidity Plan describes (i) the objectives of the Liquidity 
Plan; (ii) the roles and responsibilities of various LCH SA personnel 
in liquidity management; (iii) the sources and uses of LCH SA's 
liquidity; (iv) how LCH SA uses stress testing in monitoring and 
determining its liquidity needs; and (v) how LCH SA monitors and 
manages its liquidity needs.

Objectives

    The objectives of the Liquidity Plan are to ensure: (i) the 
effective management of liquidity by adhering to the appropriate 
governance structure to manage liquidity risk, including reporting 
lines and accountabilities; (ii) the liquidity adequacy of LCH SA at 
all times in accordance with policies set by the appropriate governance 
authority and monitored and reported by LCH SA Risk Department; (iii) 
that liquidity management and resources are aligned with LCH SA 
operational requirements to meet payment obligations as they fall due 
under business as usual and stressed liquidity conditions; (iv) 
effective liquidity risk identification and escalation within 
Collateral and Liquidity Management (``CaLM'') and the other 
departments within LCH SA identified in the Liquidity Plan; and (v) 
that systems and processes are in place to facilitate effective 
management of liquidity risk.\4\
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    \4\ Capitalized terms not otherwise defined herein have the 
meanings assigned to them in the Liquidity Plan.
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Roles and Responsibilities

    Section 2 of the Liquidity Plan sets out the roles and 
responsibilities within LCH SA for compliance with the Liquidity Plan. 
The Liquidity Plan provides that: (i) the LCH SA Head of CaLM (or 
delegate) is responsible for, among other things, maintaining the 
Liquidity Plan, overseeing the portfolio management function, LCH SA's 
overall liquidity position, and adherence to the Liquidity Plan and 
relevant policies; (ii) CaLM Front Office, comprised of trading 
personnel, is responsible for, among other things, day-to-day 
investment activities, intraday liquidity management and monitoring, 
and oversight of asset encumbrance requirements including for pledged 
assets and Futures Commission Merchant (``FCM'') non-cash collateral; 
(iii) Second Line CaLM Risk sets liquidity risk limits, enforces 
liquidity risk limits and escalates limit breaches, develops and 
enhances the liquidity risk management framework, and identifies, 
measures, monitors, and reports liquidity risks, among other 
responsibilities; (iv) Collateral Operations is responsible for, among 
other things, the operational and control processes related to intraday 
liquidity flows and performs intraday monitoring of CaLM investment 
activity; and (v) CaLM Middle Office is responsible for mark-to-market 
of the CaLM SA portfolio and formal reporting of CaLM investment 
activity.
    As described in Section 4 of the Liquidity Plan, CaLM First Line 
Risk also is responsible for the daily pricing of the liquid assets and 
investment portfolio. Regular reporting is distributed by CaLM Middle 
Office to relevant stakeholders through downstream systems, including 
by distributing a CaLM Investment Report on a daily and monthly basis. 
Second Line CaLM Risk conducts the monitoring and reporting of these 
activities, as described immediately above.
    Finally, the LCH SA Chief Risk Officer is responsible for taking 
and deciding any relevant actions during a liquidity event.

Sources and Uses of Liquidity

    The Liquidity Plan identifies the different sources and 
availability of liquidity, including: (i) cash posted by members to 
meet margin requirements;

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(ii) cash contributions to Default Funds; (iii) LCH SA's own capital; 
(iv) excess cash placed by LCH SA's clearing members; and (v) cash 
arising from settlement fails. The primary sources of liquidity for LCH 
SA are the cash posted by its members to meet margin requirements, the 
cash contributions to Default Funds, as well as LCH SA's own capital.
    Beyond these primary sources, the Liquidity Plan specifies that 
available liquidity resources include: (i) maturing transactions from 
reverse repo and overnight unsecured investments; (ii) sale of 
portfolio of highly liquid assets; (iii) maturity and/or redemption of 
on-demand investments; (iv) repo of highly liquid securities; (v) 
borrowing facilities; (vi) foreign exchange (``FX'') funding 
transactions; and (vii) access to central bank liquidity.
    The Liquidity Plan also identifies potential uses of liquidity 
which could impact the liquidity resources available to meet liquidity 
requirements, including: (i) cash tied in investment activities which 
cannot be freed in time to meet requirements; (ii) disruption in the 
cash bond/repo market which delays mobilization of a defaulted clearing 
member's non-cash collateral; (iii) payment flow delays; (iv) credit 
lines with an International Central Securities Depository (``ICSD'') 
being reduced or not available; and (v) cash/non-cash that is provided 
for interoperability arrangement purposes.
    To mitigate such potential draws on liquidity, the Liquidity Plan 
sets out additional methods to retain liquidity within LCH SA. These 
include: (i) increasing the notice period required for clearing members 
to substitute non-cash collateral for cash collateral; (ii) using 
intraday liquidity available at Central Securities Depositories 
(``CSDs''); (iii) prioritizing the return of non-cash over cash 
collateral; (iv) applying caps on pledge amounts and non-Euro 
securities; (v) requiring clearing members to post a minimum amount of 
cash collateral; and (vi) making extraordinary margin calls if the 
Liquidity Coverage Ratio falls below specified thresholds.

Stress Tests

    The Liquidity Plan describes how LCH SA conducts stress testing of 
its liquidity position. This includes daily liquidity stress testing 
for Cover 2 default by currency; intraday Cover 2 default liquidity 
stress testing when LCH SA has scheduled obligations to pay; and at 
least a 5-day forward looking Cover 2 default liquidity stress test. 
LCH SA also conducts additional stress testing using scenarios that 
consider: liquidity following a Cover 2 default; stresses at Euronext 
Clearing liquidity stress testing; and compliance with the Commission's 
specific liquidity requirements.
    In addition, the Liquidity Plan also describes LCH SA's liquidity 
reverse stress scenarios. These scenarios model: (i) reductions in cash 
margin to generate a liquidity deficit; (ii) switches to non-liquid 
resources; (iii) rating downgrades of Euro zone peripheral and core 
countries; (iv) increased outflows due to mark-to-market moves of 
assets; (v) multiple defaults of low credit worthiness members; (vi) 
Euronext Clearing variation margins; (vii) increases in the maturity of 
securities from margin collateral and settlement of repo transactions; 
and (viii) combined behavioral and macroeconomic scenarios.

Monitoring and Managing Liquidity Needs

    The Liquidity Plan also describes how LCH SA monitors and manages 
its liquidity needs on an ongoing basis. With respect to monitoring, as 
noted above, Second Line CaLM Risk sets liquidity risk limits and 
monitors, controls, and reports the liquidity risk of LCH SA to CaLM on 
a daily basis. Second Line CaLM risk also maintains and runs various 
stress scenarios and monitors the largest stress loss against the legal 
entity capital and available liquidity resources.
    With respect to management of liquidity needs, LCH SA manages these 
according to whether they relate to business-as-usual operations or a 
clearing member default. Operational liquidity needs are those needs 
arising from LCH SA's operations, not related to a clearing member's 
default. Operational liquidity needs include repayment of excess cash 
collateral to members; substitution of cash collateral upon member 
request; provision of liquidity to facilitate settlement (including 
fails); potential planned Default Fund reductions; overall reductions 
in Initial Margin and thus cash posted for margin coverage; and 
Euronext Clearing variation margin outflows. Default-related liquidity 
needs are those arising from the default of a clearing member.
    As described in the Liquidity Plan, LCH SA manages operational 
liquidity needs by first monitoring daily liquidity flows to determine 
where a need may arise in day-to-day operations. Specifically, the 
Liquidity Plan specifies that Collateral Operations monitors daily 
liquidity flows, with the 9:30 a.m. observation identified as the most 
accurate indicator of daily operational liquidity requirements since 
all margin returns to members occur in the morning. The Liquidity Plan 
next describes various actions that LCH SA can take to generate 
intraday liquidity for operational needs, such as using Euro cash 
collateral and pledging Euro non-cash securities to the Banque de 
France 3G credit line to obtain cash, and, as a last resort, 
uncommitted credit lines. Finally. the Liquidity Plan describes how LCH 
SA would replenish any cash used to meet operational liquidity needs, 
which LCH SA would expect to do so once settlement is completed and/or 
the operational issue generating the need is resolved.
    The second major source of liquidity needs, default liquidity, 
includes LCH SA's needs from fulfilment of the settlement obligations 
of a defaulted clearing member, such as posting of variation margins to 
non-defaulting members on positions held by a defaulted clearing. The 
Liquidity Plan describes various actions that LCH SA can take to 
generate intraday liquidity in a default. As with operational liquidity 
needs, these actions include using Euro cash collateral and pledging 
Euro non-cash securities to the Banque de France 3G credit line to 
obtain cash, and, as a last resort, uncommitted credit lines.
    The Liquidity Plan also describes how LCH SA would replenish any 
cash used to meet default liquidity needs, which LCH SA would expect to 
do using the waterfall of resources available under its rules to cover 
default losses. For example, to complete settlement of cleared 
contracts, LCH SA would source the required liquidity from the pool of 
cash posted by members (margin and default fund contributions), by 
utilizing bonds under the cleared contract or from the non-cash 
collateral pool to raise liquidity through the Banque de France 3G 
credit line, or repo transactions. The bond acquired would then be sold 
in the auction and the proceeds used to replenish liquidity. If the 
bond is sold at a lower value than the cash paid under the repo, LCH SA 
could cover the resulting mark-to-market loss using the resources set 
out in its default waterfall.
    Finally, as part of its ongoing management of its liquidity needs, 
LCH SA regularly tests the availability of liquidity and conducts due 
diligence on its liquidity providers. As described in the Liquidity 
Plan, LCH SA's CaLM team undertakes ``War Games'' testing to ensure 
that assumptions around activities used in stressed environments to 
raise liquidity are realistic. CaLM also tests, with each counterparty 
that provides liquidity to LCH SA, its ability to access the liquidity 
resources. The Liquidity Plan also requires LCH SA to

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undertake due diligence on each of its liquidity providers to assess 
the relevant provider's capacity to understand and manage its own 
liquidity risk as well as its ability to provide liquidity to LCH SA. 
The scope of this due diligence extends to CSDs and ICSDs, central 
banks, and CaLM counterparties, in each case where such entities act as 
liquidity providers to LCH SA.

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.\5\ 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.'' \6\
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    \5\ 15 U.S.C. 78s(b)(2)(C).
    \6\ 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,\7\ 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.\8\ 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.\9\
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    \7\ Id.
    \8\ Id.
    \9\ 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,\10\ and Rules 17Ad-22(e)(2)(v) and 
(e)(7).\11\
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    \10\ 15 U.S.C. 78q-1(b)(3)(F).
    \11\ 17 CFR 240.17ad-22(e)(2)(v), (7).
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A. Consistency With Section 17A(b)(3)(F) of the Act

    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.\12\
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    \12\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Liquidity Plan promotes the prompt and accurate clearance and 
settlement of securities transactions by ensuring that LCH SA maintains 
sufficient liquidity resources to meet its settlement obligations. The 
Liquidity Plan does so by identifying and prioritizing multiple sources 
of liquidity to facilitate settlement, including cash margin posted by 
members, Default Fund contributions, and LCH SA's own capital, while 
also establishing detailed procedures for generating additional 
liquidity through the Banque de France 3G credit line, bilateral and 
triparty repo transactions, and central bank facilities. The Liquidity 
Plan addresses liquidity needed for settlement continuity as part of 
LCH SA's daily operations. The Liquidity Plan addresses settlement 
continuity in default scenarios as well, providing that LCH SA will 
source required liquidity from the pool of cash posted by members, by 
utilizing bonds under cleared contracts, or from the non-cash 
collateral pool, thereby ensuring that settlement obligations of a 
defaulted clearing member can be fulfilled without disruption to the 
broader clearance and settlement process. These provisions will help 
ensure that LCH SA has sufficient liquidity to complete settlement in 
its business-as-usual operations, as well as during a default of a 
clearing member, thereby helping ensure the prompt and accurate 
clearance and settlement of securities transactions.
    The Liquidity Plan further describes how LCH SA will monitor and 
manage its liquidity resources and needs. For example, Collateral 
Operations monitors daily liquidity flows on a day-to-day basis, with 
the 9:30 a.m. observation identified as the most accurate indicator of 
daily operational liquidity requirements, ensuring that margin returns 
to members are processed accurately and promptly each morning. LCH SA 
also conducts stress tests of its liquidity position, which help ensure 
that LCH SA maintains adequate liquidity to complete settlement even in 
stressed market conditions. Finally, the Plan's requirement that LCH SA 
undertake due diligence on each of its liquidity providers and that 
CaLM conduct annual ``War Games'' testing with each liquidity provider 
helps ensures that the procedures and resources necessary to safeguard 
member assets and meet settlement obligations remain operationally 
viable under both normal and stressed market conditions. These 
provisions will help ensure that LCH SA is able to monitor and manage 
its liquidity needs, and access liquidity to satisfy those needs, 
thereby helping ensure the prompt and accurate clearance and settlement 
of securities transactions.
    Accordingly, the proposed rule change is consistent with the 
requirements of Section 17A(b)(3)(F) of the Act.\13\
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    \13\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17ad-22(e)(2)(v)

    Exchange Act Rule 17ad-22(e)(2)(v) requires that each covered 
clearing agency establish, implement, maintain and enforce written 
policies and procedures reasonably designed to provide for governance 
arrangements that specify clear and direct lines of responsibility.\14\ 
As discussed above, the Liquidity Plan would set out the roles and 
responsibilities of various LCH SA personnel and departments in 
carrying out the objectives and requirements of the Liquidity Plan. For 
example, the LCH SA Head of CaLM (or delegate) is responsible for, 
among other things, maintaining the Liquidity Plan, overseeing the 
portfolio management function, LCH SA's overall liquidity position, and 
adherence to the Liquidity Plan and relevant policies. By setting out 
the roles and responsibilities of various LCH SA personnel and 
departments, the Liquidity Plan would specify clear and direct lines of 
responsibility, consistent with Exchange Act Rule 17ad-22(e)(2)(v).\15\
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    \14\ 17 CFR 240.17Ad-22(e)(2)(v).
    \15\ Id.
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    Accordingly, the proposed rule change is consistent with the 
requirements of Exchange Act Rule 17ad-22(e)(2)(v).\16\
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    \16\ Id.
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C. Consistency With Rule 17ad-22(e)(7)

    Exchange Act Rule 17ad-22(e)(7) requires, among other things, that 
each covered clearing agency 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

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managing its settlement and funding flows on an ongoing and timely 
basis, and its use of intraday liquidity.\17\
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    \17\ 17 CFR 240.17Ad-22(e)(7).
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    The Liquidity Plan is consistent with this requirement because it 
establishes a comprehensive framework for measuring, monitoring, and 
managing liquidity risk on an ongoing and timely basis. The Liquidity 
Plan requires daily liquidity stress testing for Cover 2 default by 
currency, at least a 5-day forward looking liquidity stress test, and 
liquidity assessments conducted daily at an aggregated level across all 
material currencies, ensuring continuous measurement and monitoring of 
LCH SA's liquidity position. With respect to intraday liquidity, the 
Liquidity Plan describes the resources that LCH SA would use to fulfill 
needs, assigns CaLM Front Office direct responsibility for intraday 
liquidity management and monitoring, and requires Collateral Operations 
to perform intraday monitoring of investment activity and daily 
liquidity flows. Second Line CaLM Risk further supports these efforts 
by setting and enforcing liquidity risk limits and escalating limit 
breaches on an ongoing basis. The Liquidity Plan also details how LCH 
SA manages its operational and default liquidity risks, including by 
identifying the needs associated with daily operations and a default, 
the sources that LCH SA uses to satisfy its liquidity needs, and how 
LCH SA would replenish its liquidity resources. Together, these 
provisions would help LCH SA to measure, monitor, and manage its 
liquidity risk, its settlement and funding flows, and its use of 
intraday liquidity, consistent with Exchange Act Rule 17ad-
22(e)(7).\18\
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    \18\ 17 CFR 240.17Ad-22(e)(7).
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    Accordingly, the proposed rule change is consistent with the 
requirements of Exchange Act Rule 17ad-22(e)(7).\19\
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    \19\ Id.
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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 Section 17A(b)(3)(F) of the 
Act,\20\ and Rules 17ad-22(e)(2)(v) and 17Ad-22(e)(7).\21\
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    \20\ 15 U.S.C. 78q-1(b)(3)(F).
    \21\ 17 CFR 240.17Ad-22(e)(2)(v), (7).
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    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
\22\ that the proposed rule change (SR-LCH SA-2026-004) be, and hereby 
is, approved.\23\
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    \22\ 15 U.S.C. 78s(b)(2).
    \23\ 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.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-17061 Filed 8-20-26; 8:45 am]
BILLING CODE 8011-01-P


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