Summary of feedback from LCH’s consultation regarding proposed rule changes associated with a Pre-cessation Trigger

LCH Group (“LCH”), and its SwapClear business, support the continuing industry-wide initiatives regarding the transition to risk-free rates (“RFRs”), including the effective management of scenarios in which a benchmark ceases to be representative of its underlying market, as determined by the relevant competent authority.  

On 27^th January 2020, LCH issued a notice to all SwapClear participants to initiate a consultation process regarding the inclusion of an automatic trigger into fallback arrangements if the relevant regulatory authority determines an existing benchmark to be non-representative (a "pre-cessation trigger"):

https://www.lch.com/index.php/membership/ltd-membership/ltd-member-updates/lch-limited-rule-change-committee-10-january-2020

This notice incorporated links to the proposed rule changes themselves, and LCH invited responses by 23^rd March 2020, a deadline LCH subsequently extended until 31^st March 2020 in response to the business disruption associated with COVID-19.

Summary of Responses & Consultation Outcome

LCH received a number of responses, both from members and from clients. LCH also engaged with and had feedback from the official sector in those jurisdictions that operate benchmarks that were in scope of the proposed rulebook changes.

On the central issue, the majority of responses supported the inclusion of an automatic pre-cessation trigger substantially as proposed in the consultation, a significant number of which also included a request that LCH should align its position with the uncleared market, to the extent possible. LCH therefore intends to move forward with the inclusion of an automatic pre-cessation trigger as proposed, whilst also noting consultation feedback to avoid unnecessary basis risk between cleared and uncleared markets. 

Next Steps

LCH will revisit the detail of the proposed rulebook changes in light of the comments received and will continue to progress independently the implementation of an automatic pre-cessation trigger.   Following completion of the necessary internal governance processes, the proposed rulebook changes will be submitted for the required regulatory reviews prior to these rulebook changes becoming effective.

Should you have any comments or questions, or if you require further information, please do not hesitate to contact LCHGlobal.SRM@LCH.com.