SEC Greenlights Bank Drills for Doomsday Trade Clearing
Published Date: 6/24/2025
Notice
Summary
LCH SA just updated its rule book to make sure all clearing members test their disaster recovery and business continuity plans regularly. This change affects banks and brokers who clear credit default swaps, helping keep the system safe and smooth. The new rules kick in soon, with no extra costs, but everyone needs to be ready to test on time!
Analyzed Economic Effects
3 provisions identified: 0 benefits, 2 costs, 1 mixed.
Mandatory Annual Disaster-Plan Tests
If you are a clearing member (banks or brokers that clear CDS and other swaps), LCH SA now requires you to participate in functional and performance testing of its business continuity, disaster recovery (BCDR), and recovery and orderly wind-down (RWD) plans. LCH SA says it will require testing at least once every 12 months and will notify designated participants with one month's notice by email.
Limits on Customer Collateral Withdrawals
FCM/BD clearing members must ensure a Cleared Swaps Customer cannot withdraw collateral if, after the withdrawal, the customer's net liquidating value plus remaining funds would not satisfy the collateral amount required by LCH (per Article 6.2.6.1 and new paragraph (f) of Regulation 6). This treatment is adopted in connection with CFTC Rule 1.44.
Separate-Account Margin Treatment Option
A single beneficial owner may have multiple Cleared Swaps Customer Accounts treated separately for margin if they make a separate accounts election and comply with CFTC Rule 1.44. Even when accounts are treated separately, each account must independently satisfy LCH SA's collateral requirements.
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