Self-Regulatory Organizations; Proposed Rule Changes: LCH SA

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.

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⁾

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; (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 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⁾

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⁾

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⁾

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⁾

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⁾

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⁾

Accordingly, the proposed rule change is consistent with the requirements of Exchange Act Rule 17ad-22(e)(2)(v). ⁽¹⁶⁾

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 managing its settlement and funding flows on an ongoing and timely basis, and its use of intraday liquidity. ⁽¹⁷⁾

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⁾

Accordingly, the proposed rule change is consistent with the requirements of Exchange Act Rule 17ad-22(e)(7). ⁽¹⁹⁾

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⁾

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⁾

[FR Doc. 2026-17061 Filed 8-20-26; 8:45 am]

BILLING CODE 8011-01-P

⁽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").

⁽⁴⁾  Capitalized terms not otherwise defined herein have the meanings assigned to them in the Liquidity Plan.

⁽⁵⁾  15 U.S.C. 78s(b)(2)(C).

⁽⁶⁾  Rule 700(b)(3), Commission Rules of Practice, 17 CFR 201.700(b)(3).

⁽⁷⁾ Id.

⁽⁸⁾ Id.

⁽⁹⁾ Susquehanna Int'l Group, LLP v. Securities and Exchange Commission, 866 F.3d 442, 447 (D.C. Cir. 2017).

⁽¹⁰⁾  15 U.S.C. 78q-1(b)(3)(F).

⁽¹¹⁾  17 CFR 240.17ad-22(e)(2)(v), (7).

⁽¹²⁾  15 U.S.C. 78q-1(b)(3)(F).

⁽¹³⁾  15 U.S.C. 78q-1(b)(3)(F).

⁽¹⁴⁾  17 CFR 240.17Ad-22(e)(2)(v).

⁽¹⁵⁾ Id.

⁽¹⁶⁾ Id.

⁽¹⁷⁾  17 CFR 240.17Ad-22(e)(7).

⁽¹⁸⁾  17 CFR 240.17Ad-22(e)(7).

⁽¹⁹⁾ Id.

⁽²⁰⁾  15 U.S.C. 78q-1(b)(3)(F).

⁽²¹⁾  17 CFR 240.17Ad-22(e)(2)(v), (7).

⁽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).

⁽²⁴⁾  17 CFR 200.30-3(a)(12).