SEC Approves LCH SA Expansion of Eligible U.S. Treasury Collateral

The Securities and Exchange Commission approved LCH SA’s proposed rule change on 4 June to expand the collateral eligible for margin and default fund requirements in its CDSClear service. The approval adds U.S. Treasury notes, bonds, floating-rate notes and Treasury inflation-protected securities to the collateral pool.

LCH SA already accepted U.S. Treasury bills as eligible margin collateral. The approved change broadens the list to longer-dated Treasury securities and inflation-linked instruments, while keeping eligibility criteria, haircuts and concentration limits in place. The SEC order says LCH SA will apply dollar concentration limits at both the individual clearing member and clearing member group levels.

The order also notes that LCH SA will use existing counterparties to safeguard the securities and liquidate them if needed in connection with a clearing member default. The SEC found the change consistent with Exchange Act clearing-agency standards, including requirements for prompt and accurate clearance and settlement and for limiting collateral to assets with low credit, liquidity and market risks.

For clearing members, the change means a broader set of high-quality liquid assets can be used to meet CDSClear margin and default fund obligations. For traders, the effect is indirect but still relevant: collateral eligibility can influence clearing-member balance sheet flexibility, funding choices and the cost of carrying cleared credit derivative exposures.

Why it matters

Collateral rules are part of market structure. A larger eligible collateral pool can make it easier for clearing members to support client activity, but the value depends on conservative haircuts, concentration limits and liquidity under stress.

What to watch next

Watch whether LCH SA adjusts limits if Treasury-market liquidity changes, and whether other clearing services seek similar collateral flexibility for margin and default resources.