SEC Issues No-Action Relief to LCH.Clearnet SA and Clearing Members for Spun-out Components of Index CDS

The SEC Division of Trading and Markets issued a no-action letter to LCH.Clearnet Group Limited, the holding company of LCH.Clearnet SA ("LCH.C SA") in response to its request for relief from the registration requirements required in Exchange Act Section 17A(b)(1) ("National System for Clearance and Settlement of Securities Transactions") in connection to component transactions that are spun out of certain broad-based index credit default swaps ("CDS"), and LCH's Clearing Members by clearing security-based swaps through an unregistered clearing agency. The letter issued no-action relief to LCH.C SA, extending its clearing services to Cleared Index CDS to U.S. Clearing Members for proprietary accounts only, which allowed the LCH.C SA to provide clearing services for swaps without violating the Exchange Act for the occurrence of a Credit Event with respect of a Reference Entity that is a component of a Cleared Index CDS. The SEC allowed LCH.C SA an exemption from registering as a clearing agency, but noted some restrictions, including:

• LCH.C, SA will not permit U.S. Clearing Members to increase, close out other than through the Credit Event Management Process, or otherwise affect the size of a position in Spun-out Component Transaction.
• LCH.C SA will not permit U.S. Clearing Members to clear security-based swaps other than Spun-out Component Transactions for the Cleared Index CDS.
• LCH.C SA will offer clearing services for Cleared Index CDS to its U.S. Clearing Members for proprietary accounts only and will not accept for clearing Cleared Index CDS on behalf of U.S. customers.

See: SEC No-Action Letter.See also: CFTC No-Action Letter 13-52: LCH.Clearnet Ltd and Clearing Members (September 23, 2013).