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

[Federal Register Volume 91, Number 110 (Tuesday, June 9, 2026)]

[Notices]

[Pages 34864-34867]

From the Federal Register Online via the Government Publishing Office [ www.gpo.gov ]

[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