82 FR 55139 - Self-Regulatory Organizations; LCH SA; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Margin Framework and Default Fund Methodology for Options on Index Credit Default Swaps

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 222 (November 20, 2017)

[Federal Register Volume 82, Number 222 (Monday, November 20, 2017)]
[Notices]
[Pages 55139-55141]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-25040]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82076; File No. SR-LCH SA-2017-008]


Self-Regulatory Organizations; LCH SA; Notice of Filing and 
Immediate Effectiveness of a Proposed Rule Change Relating to Margin 
Framework and Default Fund Methodology for Options on Index Credit 
Default Swaps

November 14, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder \2\ notice is hereby given that 
on November 6, 2017, Banque Centrale de Compensation, which conducts 
business under the name LCH SA (``LCH SA''), filed with the Securities 
and Exchange Commission (``Commission'') the proposed rule change 
described in Items I, II, and III below, which Items have been prepared 
primarily by LCH SA. LCH SA filed the proposed rule changes pursuant to 
Section 19(b)(3)(A) \3\ of the Act and Rule 19b-4(f)(2) \4\ thereunder, 
so that the proposal was effective upon filing with the Commission. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    LCH SA is filing the new fee grid in connection with the proposed 
extension of the CDSClear service to the clearing of options on index 
credit default swaps (``CDS Options''). The text of the proposed rule 
change has been annexed as Exhibit 5.
    Two separate proposed rule changes have been submitted concurrently 
(SR-

[[Page 55140]]

LCH SA-2017-006 and 007) with respect to amendments to (i) LCH SA's 
rule book and other relevant procedures and to (ii) LCH SA CDSClear 
Margin Framework and Default Fund Methodology in order to incorporate 
terms and to make conforming and clarifying changes to allow CDS 
Options to be cleared by LCH SA. The launch of clearing CDS Options 
will be contingent on LCH SA's receipt of all necessary regulatory 
approvals, including the approval by the Commission of the proposed 
rule changes described under SR-LCH-SA-2017-006 and 007.

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, LCH SA included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. LCH SA has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of these statements.

A. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to establish the 
applicable fee grid in connection with the proposed extension of the 
CDSClear service to the clearing of CDS Options.
    The proposed rule change introduces a fixed onboarding fee payable 
by every General and Select member that will join the new clearing 
service. The onboarding fee will be waived for any member whose 
onboarding for such clearing service is duly confirmed by LCH SA on or 
before 31st March 2018.
    In addition to the fixed onboarding fee, the clearing fees are due 
by each General Member, Select Member or Client in accordance with the 
amount, currency and volume specified in the fee grid attached in 
Exhibit 5. Similar to the current Index & Single Names fee grid for 
General Membership under the Introductory tariff, a floor and a cap on 
clearing fees have been implemented for General Members opting for the 
CDS Options clearing service. Select Members opting for the CDS Options 
clearing service are only subject to capped fees as Select Membership 
is designed primarily for price takers with a smaller portfolio and a 
fixed cost (to which a floor amounts to) would deter them from clearing 
CDS Options.
    All members and clients will benefit from a clearing fee holiday 
until 31st December 2017.
2. Statutory Basis
    LCH SA believes that the proposed rule change in connection with 
the clearing of CDS Options is consistent with the requirements of 
Section 17A of the Act and the regulations thereunder, including the 
standards under Rule 17Ad-22.\5\
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    \5\ 17 CFR 240.17Ad-22.
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    Section 17A(b)(3)(D) of the Act requires that the rules of a 
clearing agency provide for the equitable allocation of reasonable 
dues, fees, and other charges.\6\ The proposed fee grid for the new 
non-mandatory Credit Index Options clearing service has been discussed 
with CDSClear members and designed with the goal of enabling members to 
register to this service as well as to incentivize clearing of such 
non-mandated for clearing products while taking into consideration 
current market trading conditions for options.
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    \6\ 15 U.S.C. 78q-1(b)(3)(D).
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    As noted above, the proposed fee grid will apply equally to all 
General members, Select Members and clients that will voluntary 
participate in this new CDS Clearing Service and LCH SA believes that 
it is reasonable and appropriate.
    As Select Members have fewer obligations than General Members, 
variable clearing fees for CDS Options are higher for Select Members 
than for General Members (similarly to the current Index & Single Names 
variable fee grid). Clients have no obligation towards the CCP, and 
hence variable clearing fees for CDS Options are set higher for them 
than for Members (similarly to the current Index & Single Names 
variable fee grid). As for Select Members, a fixed cost (floor) being 
applied to clients could deter them from choosing to clear CDS Options.
    Finally, the purpose of the cap is to incentivize participants to 
provide liquidity into the CDS Options clearing service. Unlike General 
Members, as clients are not meant to provide such liquidity, LCH SA 
does not offer capped clearing fees for clients.
    LCH SA believes that the proposed rule change is consistent with 
the requirements of Section 17A of the Act \7\ and regulations 
thereunder applicable to it, because it provides for the equitable 
allocation of reasonable fees, dues, and other charges among clearing 
members and market participants by ensuring that General and Select 
Members and clients pay reasonable fees and dues for the services that 
LCH SA provides.
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    \7\ 15 U.S.C. 78q-1.
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B. Clearing Agency's Statement on Burden on Competition

    Section 17A(b)(3)(I) of the Act requires that the rules of a 
clearing agency not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.\8\ LCH SA does 
not believe that the proposed rule change would impose any burden on 
competition that are not necessary or appropriate in furtherance of the 
purposes of the Act.
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    \8\ 15 U.S.C. 78q-1(b)(3)(I).
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    Credit Index Options contracts will be available to all LCH SA 
CDSClear participants for clearing. The clearing of CDS Options 
contracts by LCH SA CDSClear does not preclude the offering of these 
financial instruments for clearing by other market participants.
    The proposed rule change does not adversely affect the ability of 
such Clearing Members or other market participants generally to engage 
in cleared transactions or to access clearing services. Therefore, LCH 
SA does not believe that the proposed rule change would impose a burden 
on competition not necessary or appropriate in furtherance of the 
purposes of the Act.

C. Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants or Others

    Written comments relating to the proposed rule change have not been 
solicited or received. LCH SA will notify the Commission of any written 
comments received by LCH SA.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Subject to any regulatory review or approval process duly 
completed, the foregoing proposed rule change has become effective upon 
filing pursuant to Section 19(b)(3)(A) \9\ of the Act and Rule 19b-
4(f)(2) \10\ thereunder because it establishes a fee or other charge 
imposed by LCH SA on its Clearing Members. At any time within 60 days 
of the filing of the proposed rule change, the Commission summarily may 
temporarily suspend such proposed rule change if it appears to the 
Commission that such action is necessary or appropriate in the public 
interest, for the protection of investors, or otherwise

[[Page 55141]]

in furtherance of the purposes of the Act.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-LCH SA-2017-008 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
    All submissions should refer to File Number SR-LCH SA-2017-008. 
This file number should be included on the subject line if email is 
used. To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for Web site 
viewing and printing in the Commission's Public Reference Room, 100 F 
Street NE., Washington, DC 20549 on official business days between the 
hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be 
available for inspection and copying at the principal office of LCH SA 
and on LCH SA's Web site at http://www.lch.com/asset-classes/cdsclear.
    All comments received will be posted without change. Persons 
submitting comments are cautioned that we do not redact or edit 
personal identifying information from comment submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-LCH SA-2017-008 and should 
be submitted on or before December 11, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-25040 Filed 11-17-17; 8:45 am]
 BILLING CODE 8011-01-P