83_FR_12502 83 FR 12447 - Self-Regulatory Organizations; LCH SA; Order Granting Approval on an Accelerated Basis of Proposed Rule Change Relating to Self-Referencing Transactions

83 FR 12447 - Self-Regulatory Organizations; LCH SA; Order Granting Approval on an Accelerated Basis of Proposed Rule Change Relating to Self-Referencing Transactions

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 55 (March 21, 2018)

Page Range12447-12448
FR Document2018-05648

Federal Register, Volume 83 Issue 55 (Wednesday, March 21, 2018) 
[Federal Register Volume 83, Number 55 (Wednesday, March 21, 2018)]
[Notices]
[Pages 12447-12448]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-05648]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82883; File No. SR-LCH SA-2018-001]


Self-Regulatory Organizations; LCH SA; Order Granting Approval on 
an Accelerated Basis of Proposed Rule Change Relating to Self-
Referencing Transactions

March 15, 2018.

I. Introduction

    On January 31, 2018, Banque Centrale de Compensation, which 
conducts business under the name LCH SA (``LCH SA''), filed with the 
Securities and Exchange Commission (``Commission''), pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ 
and Rule 19b-4 thereunder,\2\ a proposed rule change (SR-LCH SA-2018-
001) to amend its CDS Clearing Supplement and its CDS Clearing 
Procedures in order to allow for the clearance and settlement of client 
transactions referencing the client's clearing broker, as well as to 
amend its Clearing Supplement to provide for the clearance of the 
Standard European Senior Non Preferred Financial Corporate Transaction 
type, and to make certain clarifying amendments.\3\ The proposed rule 
change was published for comment in the Federal Register on February 
15, 2018.\4\ The Commission did not receive comments on the proposed 
rule change. For the reasons discussed below, the Commission is 
approving the proposed rule change on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Capitalized terms used in this order, but not defined 
herein, have the same meaning as in the LCH SA Rules, CDS Clearing 
Supplement, or CDS Clearing Procedures.
    \4\ Securities Exchange Act Release No. 34-82675 (February 9, 
2018), 83 FR 6915 (February 15, 2018) (SR-LCH SA-2018-001) 
(``Notice'').
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II. Description of the Proposed Rule Change

    As currently constructed, LCH SA's rules prohibit certain ``self-
referencing'' transactions. Specifically, LCH SA prohibits, in the case 
of a house transaction,\5\ the clearing of single-name credit default 
swap (``SN CDS'') transactions where the reference entity underlying 
the SN CDS is the Clearing Member, or an affiliate of the Clearing 
Member, that is clearing the transaction. In the case of a client 
transaction, LCH SA currently prohibits clearing of a transaction in 
which the reference entity underlying the SN CDS is the client (or an 
affiliate of the client), or the clearing broker (or affiliate of the 
clearing broker) of the client that is clearing the CDS transaction.\6\
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    \5\ A house transaction is any Cleared Transaction registered in 
the House Trade Account of a Clearing Member. A House Trade Account, 
in turn, is an account opened by LCH SA at the request and in the 
name of a Clearing Member within the Account Structure of the 
Clearing Member in the CDS Clearing System in order to register 
Cleared Transactions cleared by such Clearing Member for its own 
account. See Section 1.1.1, Terms defined in the CDS Clearing Rule 
Book, LCH SA CDS Clearing Rule Book, 4 January 2018.
    \6\ Notice, 83 FR at 6915.
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    Under the proposed rule change, LCH SA would permit the clearing of 
client transactions where the reference entity underlying the SN CDS is 
the clearing broker, or an affiliate of the clearing broker, of the 
client clearing the transaction. Specifically, LCH SA would amend 
Section 4 of its CDS Clearing Procedures to revise the eligibility 
requirement for SN CDS to make a distinction between house and client 
self-referencing transactions in order to permit clients to clear CDS 
where the underlying reference entity is the client's clearing broker 
or an affiliate

[[Page 12448]]

thereof.\7\ House transactions where the underlying reference entity is 
the Clearing Member clearing the transaction would remain prohibited. 
In addition, client transactions where the underlying entity is the 
client clearing the transaction (or an affiliate of the client) will 
continue to be prohibited.\8\
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    \7\ Id.
    \8\ Id.
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    LCH SA also proposed to amend provisions in its Clearing Supplement 
that address self-referencing transactions to provide that a clearing 
broker would not be required to notify LCH SA when a client transaction 
occurs where the underlying reference entity is the clearing broker of 
the client clearing the transaction, but would continue to be required 
to notify LCH SA when a client transaction occurs where the underlying 
reference entity is the client that is clearing the transaction.\9\
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    \9\ Id. at 6915-16.
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    In addition to the changes regarding self-referencing transactions 
described above, LCH SA proposed amendments to the CDS Clearing 
Supplement to add (i) a reference to the Standard European Senior Non 
Preferred Corporate transaction type, (ii) to add a missing reference 
to the Standard European Financial Corporate transaction type, and 
(iii) to make certain clarifying edits regarding the underlying index 
transaction of a cleared index swaption transaction.\10\ LCH SA stated 
that no changes would need to be made to its risk methodology in 
connection with the addition of a reference to the Standard European 
Senior Non Preferred Corporate transaction type, as the risks specific 
to this transaction type would be captured by the framework developed 
for HoldCo entities that LCH SA previously implemented.\11\
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    \10\ Id. at 6916.
    \11\ Id.
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III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act directs the Commission to approve a 
proposed rule change of a self-regulatory organization if it finds that 
such proposed rule change is consistent with the requirements of the 
Act and the rules and regulations thereunder applicable to such 
organization.\12\ For the reasons given below, the Commission finds 
that the proposal is consistent with Section 17A(b)(3)(F) of the Act.
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    \12\ 15 U.S.C. 78s(b)(2)(C).
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    Section 17A(b)(3)(F) of the Act requires, among other things, that 
the rules of a registered clearing agency be designed to promote the 
prompt and accurate clearance and settlement of securities transactions 
and, to the extent applicable, derivative agreements, contracts, and 
transactions, to assure the safeguarding of securities and funds which 
are in the custody or control of the clearing agency or for which it is 
responsible and, in general, to protect investors and the public 
interest.\13\ For the reasons stated below, the Commission finds that 
the proposed rule change is consistent with the requirements of Section 
17A(b)(3)(F) of the Act.
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    \13\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission has reviewed the terms and conditions of the 
contracts that LCH SA intends to clear pursuant to the proposed rule 
change and has determined that they are substantially similar to other 
contracts currently cleared by LCH SA, the key difference being, with 
respect to the Standard European Senior Non Preferred Corporate 
transaction type, that the reference obligation underlying such 
contracts represent a new debt class. In the case of the client ``self-
referencing'' transactions, the key difference will be that the 
underlying reference entity will be the clearing broker, or an 
affiliate of the clearing broker, of the client clearing the 
transaction.
    Based on a review of the Notice, LCH SA's Clearing Procedures and 
Clearing Supplement, the Commission believes that LCH SA's existing 
clearing arrangements and related financial safeguards, protections and 
risk management procedures will apply to these new transaction types on 
a substantially similar basis as other contracts currently cleared by 
LCH SA. In addition, the Commission believes that, as a result of 
accepting client transactions where the underlying reference entity is 
the clearing broker (or affiliate of the clearing broker) of the 
client, such transactions, which are currently executed in the 
bilateral market and uncleared, will now be eligible to be cleared and 
benefit from the operational efficiencies and risk management 
protections available in connection with central clearing.
    Therefore, the Commission finds that the proposed rule change is 
consistent with the requirements of Section 17A(b)(3)(F) of the act 
regarding the prompt and accurate clearance and settlement of 
securities transactions and, to the extent applicable, derivative 
agreements, contracts, and transactions, the safeguarding of securities 
and funds which are in the custody or control of the clearing agency or 
for which it is responsible and, in general, to protect investors and 
the public interest.
    Section 19(b)(2)(C)(iii) of the Act allows the Commission to 
approve a proposed rule change earlier than 30 days after the date of 
publication of the notice of the proposed rule change where the 
Commission finds good cause for so doing and publishes the reason for 
the finding.\14\ The Commission finds good cause, pursuant to Section 
19(b)(2)(C)(iii) of the Act, for approving the proposed rule change on 
an accelerated basis prior to the 30th day after the date of 
publication of the notice in the Federal Register in order to 
facilitate the clearing of the Standard European Senior Non-Preferred 
Financial Corporate transaction type, which the Commission understands 
market participants will commence trading beginning on March 20, 2018 
\15\ and which are tied to European capital and resolution regulations.
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    \14\ 15 U.S.C. 78s(b)(2)(C)(iii).
    \15\ See IHS Markit iTraxx Europe Rule Announcement, February 6, 
2018 (stating that for iTraxx Europe Series 29, for French bank 
OpCos that qualify for inclusion in the index, the senior non-
preferred reference obligations will be selected if available).
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
in particular with the requirements of Section 17A of the Act \16\ and 
the applicable rules and regulations thereunder.
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    \16\ 15 U.S.C. 78q-1.
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    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
\17\ that the proposed rule change (SR-LCH SA-2018-001) be, and hereby 
is, approved on an accelerated basis.\18\
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    \17\ 15 U.S.C. 78s(b)(2).
    \18\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-05648 Filed 3-20-18; 8:45 am]
 BILLING CODE 8011-01-P

Federal Register / Vol. 83, No. 55 / Wednesday, March 21, 2018 / Notices 12447 c. Primary Listing Exchange manually 9. Count and volume of (3–8) for cancels clearance and settlement of client declares a Trading Pause pursuant to 10. Include: ticker, date, time at start, time transactions referencing the client’s Section (VII)(2) of the Plan of Limit State, all data item fields in 1, clearing broker, as well as to amend its d. Other last sale prior to 15-second period (null Clearing Supplement to provide for the B. Determine (1), (2) and (3) for when a if no trades today), range during 15- Trading Pause has been declared for an second period, last trade during 15- clearance of the Standard European NMS Stock pursuant to the Plan. second period Senior Non Preferred Financial Corporate Transaction type, and to make II. Raw Data (All Participants, Except A–E, III. On May 28, 2015, Participants Provided certain clarifying amendments.3 The Which Are for the Primary Listing Exchanges to the SEC a Supplemental Joint Assessment Only) proposed rule change was published for Relating to the Impact of the Plan and Calibration of the Percentage Parameters as comment in the Federal Register on A. Record of every Straddle State February 15, 2018.4 The Commission 1. Ticker, date, time entered, time exited, Follows flag for ending with Limit State, flag for did not receive comments on the A. Assess the statistical and economic impact ending with manual override. on liquidity of approaching Price Bands. proposed rule change. For the reasons 2. Pipe delimited with field names as first B. Assess the statistical and economic impact discussed below, the Commission is record. of the Price Bands on erroneous trades. approving the proposed rule change on B. Record of every Price Band C. Assess the statistical and economic impact an accelerated basis. 1. Ticker, date, time at beginning of Price of the appropriateness of the Percentage Band, Upper Price Band, Lower Price Parameters used for the Price Bands. II. Description of the Proposed Rule Band D. Assess whether the Limit State is the Change 2. Pipe delimited with field names as first appropriate length to allow for liquidity As currently constructed, LCH SA’s record replenishment when a Limit State is rules prohibit certain ‘‘self-referencing’’ C. Record of every Limit State reached because of a temporary liquidity 1. Ticker, date, time entered, time exited, transactions. Specifically, LCH SA gap. prohibits, in the case of a house flag for halt E. Evaluate concerns from the options 2. Pipe delimited with field names as first markets regarding the statistical and transaction,5 the clearing of single-name record economic impact of Limit States on credit default swap (‘‘SN CDS’’) D. Record of every Trading Pause or halt liquidity and market quality in the transactions where the reference entity 1. Ticker, date, time entered, time exited, options markets. (Participants that underlying the SN CDS is the Clearing type of halt (i.e., regulatory halt, non- operate options exchange should also Member, or an affiliate of the Clearing regulatory halt, Trading Pause pursuant prepare such assessment reports.) to the Plan, other) Member, that is clearing the transaction. F. Assess whether the process for entering a In the case of a client transaction, LCH 2. Pipe delimited with field names as first Limit State should be adjusted and SA currently prohibits clearing of a record whether Straddle States are problematic. transaction in which the reference entity E. Data set or orders entered into reopening G. Assess whether the process for exiting a auctions during halts or Trading Pauses Limit State should be adjusted. underlying the SN CDS is the client (or 1. Arrivals, Changes, Cancels, # shares, an affiliate of the client), or the clearing H. Assess whether the Trading Pauses are too limit/market, side, Limit State side broker (or affiliate of the clearing broker) long or short and whether the reopening 2. Pipe delimited with field name as first of the client that is clearing the CDS procedures should be adjusted. record F. Data set of order events received during [FR Doc. 2018–05661 Filed 3–20–18; 8:45 am] transaction.6 Limit States BILLING CODE 8011–01–P Under the proposed rule change, LCH G. Summary data on order flow of arrivals SA would permit the clearing of client and cancellations for each 15-second transactions where the reference entity period for discrete time periods and SECURITIES AND EXCHANGE underlying the SN CDS is the clearing sample stocks to be determined by the COMMISSION broker, or an affiliate of the clearing SEC in subsequent data requests. Must broker, of the client clearing the indicate side(s) of Limit State. [Release No. 34–82883; File No. SR–LCH transaction. Specifically, LCH SA would 1. Market/marketable sell orders arrivals SA–2018–001] amend Section 4 of its CDS Clearing and executions a. Count Self-Regulatory Organizations; LCH Procedures to revise the eligibility b. Shares SA; Order Granting Approval on an requirement for SN CDS to make a c. Shares executed Accelerated Basis of Proposed Rule distinction between house and client 2. Market/marketable buy orders arrivals Change Relating to Self-Referencing self-referencing transactions in order to and executions Transactions permit clients to clear CDS where the a. Count underlying reference entity is the b. Shares March 15, 2018. client’s clearing broker or an affiliate c. Shares executed 3. Count arriving, volume arriving and I. Introduction 3 Capitalized terms used in this order, but not shares executing in limit sell orders On January 31, 2018, Banque Centrale defined herein, have the same meaning as in the above NBBO mid-point LCH SA Rules, CDS Clearing Supplement, or CDS 4. Count arriving, volume arriving and de Compensation, which conducts Clearing Procedures. shares executing in limit sell orders at or business under the name LCH SA (‘‘LCH 4 Securities Exchange Act Release No. 34–82675 below NBBO mid-point (non-marketable) SA’’), filed with the Securities and (February 9, 2018), 83 FR 6915 (February 15, 2018) 5. Count arriving, volume arriving and Exchange Commission (‘‘Commission’’), (SR–LCH SA–2018–001) (‘‘Notice’’). shares executing in limit buy orders at or pursuant to Section 19(b)(1) of the 5 A house transaction is any Cleared Transaction above NBBO mid-point (non-marketable) Securities Exchange Act of 1934 registered in the House Trade Account of a Clearing 6. Count arriving, volume arriving and Member. A House Trade Account, in turn, is an sradovich on DSK3GMQ082PROD with NOTICES (‘‘Act’’),1 and Rule 19b–4 thereunder,2 a account opened by LCH SA at the request and in shares executing in limit buy orders proposed rule change (SR–LCH SA– the name of a Clearing Member within the Account below NBBO mid-point 7. Count and volume arriving of limit sell 2018–001) to amend its CDS Clearing Structure of the Clearing Member in the CDS Supplement and its CDS Clearing Clearing System in order to register Cleared orders priced at or above NBBO mid- Transactions cleared by such Clearing Member for point plus $0.05 Procedures in order to allow for the its own account. See Section 1.1.1, Terms defined 8. Count and volume arriving of limit buy in the CDS Clearing Rule Book, LCH SA CDS orders priced at or below NBBO mid- 1 15 U.S.C. 78s(b)(1). Clearing Rule Book, 4 January 2018. point minus $0.05 2 17 CFR 240.19b–4. 6 Notice, 83 FR at 6915. VerDate Sep<11>2014 19:35 Mar 20, 2018 Jkt 244001 PO 00000 Frm 00115 Fmt 4703 Sfmt 4703 E:\FR\FM\21MRN1.SGM 21MRN1

12448 Federal Register / Vol. 83, No. 55 / Wednesday, March 21, 2018 / Notices thereof.7 House transactions where the designed to promote the prompt and responsible and, in general, to protect underlying reference entity is the accurate clearance and settlement of investors and the public interest. Clearing Member clearing the securities transactions and, to the extent Section 19(b)(2)(C)(iii) of the Act transaction would remain prohibited. In applicable, derivative agreements, allows the Commission to approve a addition, client transactions where the contracts, and transactions, to assure the proposed rule change earlier than 30 underlying entity is the client clearing safeguarding of securities and funds days after the date of publication of the the transaction (or an affiliate of the which are in the custody or control of notice of the proposed rule change client) will continue to be prohibited.8 the clearing agency or for which it is LCH SA also proposed to amend responsible and, in general, to protect where the Commission finds good cause provisions in its Clearing Supplement investors and the public interest.13 For for so doing and publishes the reason that address self-referencing the reasons stated below, the for the finding.14 The Commission finds transactions to provide that a clearing Commission finds that the proposed good cause, pursuant to Section broker would not be required to notify rule change is consistent with the 19(b)(2)(C)(iii) of the Act, for approving LCH SA when a client transaction requirements of Section 17A(b)(3)(F) of the proposed rule change on an occurs where the underlying reference the Act. accelerated basis prior to the 30th day entity is the clearing broker of the client The Commission has reviewed the after the date of publication of the clearing the transaction, but would terms and conditions of the contracts notice in the Federal Register in order continue to be required to notify LCH that LCH SA intends to clear pursuant to facilitate the clearing of the Standard SA when a client transaction occurs to the proposed rule change and has European Senior Non-Preferred where the underlying reference entity is determined that they are substantially Financial Corporate transaction type, the client that is clearing the similar to other contracts currently which the Commission understands transaction.9 cleared by LCH SA, the key difference market participants will commence In addition to the changes regarding being, with respect to the Standard trading beginning on March 20, 2018 15 self-referencing transactions described European Senior Non Preferred and which are tied to European capital above, LCH SA proposed amendments Corporate transaction type, that the and resolution regulations. to the CDS Clearing Supplement to add reference obligation underlying such (i) a reference to the Standard European contracts represent a new debt class. In IV. Conclusion Senior Non Preferred Corporate the case of the client ‘‘self-referencing’’ transaction type, (ii) to add a missing On the basis of the foregoing, the transactions, the key difference will be reference to the Standard European Commission finds that the proposed that the underlying reference entity will Financial Corporate transaction type, rule change is consistent with the be the clearing broker, or an affiliate of and (iii) to make certain clarifying edits the clearing broker, of the client clearing requirements of the Act and in regarding the underlying index the transaction. particular with the requirements of transaction of a cleared index swaption Based on a review of the Notice, LCH Section 17A of the Act 16 and the transaction.10 LCH SA stated that no SA’s Clearing Procedures and Clearing applicable rules and regulations changes would need to be made to its Supplement, the Commission believes thereunder. risk methodology in connection with that LCH SA’s existing clearing It is therefore ordered pursuant to the addition of a reference to the arrangements and related financial Section 19(b)(2) of the Act 17 that the Standard European Senior Non safeguards, protections and risk proposed rule change (SR–LCH SA– Preferred Corporate transaction type, as management procedures will apply to 2018–001) be, and hereby is, approved the risks specific to this transaction type these new transaction types on a on an accelerated basis.18 would be captured by the framework substantially similar basis as other developed for HoldCo entities that LCH For the Commission, by the Division of contracts currently cleared by LCH SA. SA previously implemented.11 Trading and Markets, pursuant to delegated In addition, the Commission believes authority.19 III. Discussion and Commission that, as a result of accepting client transactions where the underlying Eduardo A. Aleman, Findings reference entity is the clearing broker (or Assistant Secretary. Section 19(b)(2)(C) of the Act directs affiliate of the clearing broker) of the [FR Doc. 2018–05648 Filed 3–20–18; 8:45 am] the Commission to approve a proposed client, such transactions, which are BILLING CODE 8011–01–P rule change of a self-regulatory currently executed in the bilateral organization if it finds that such market and uncleared, will now be proposed rule change is consistent with eligible to be cleared and benefit from the requirements of the Act and the the operational efficiencies and risk rules and regulations thereunder management protections available in applicable to such organization.12 For connection with central clearing. the reasons given below, the Therefore, the Commission finds that 14 15 U.S.C. 78s(b)(2)(C)(iii). Commission finds that the proposal is the proposed rule change is consistent 15 See IHS Markit iTraxx Europe Rule consistent with Section 17A(b)(3)(F) of with the requirements of Section Announcement, February 6, 2018 (stating that for the Act. 17A(b)(3)(F) of the act regarding the iTraxx Europe Series 29, for French bank OpCos Section 17A(b)(3)(F) of the Act prompt and accurate clearance and that qualify for inclusion in the index, the senior requires, among other things, that the settlement of securities transactions non-preferred reference obligations will be selected sradovich on DSK3GMQ082PROD with NOTICES rules of a registered clearing agency be and, to the extent applicable, derivative if available). 16 15 U.S.C. 78q–1. 7 Id. agreements, contracts, and transactions, 17 15 U.S.C. 78s(b)(2). 8 Id. the safeguarding of securities and funds 18 In approving the proposed rule change, the 9 Id.at 6915–16. which are in the custody or control of Commission considered the proposal’s impact on 10 Id. at 6916. the clearing agency or for which it is efficiency, competition, and capital formation. 15 11 Id. U.S.C. 78c(f). 12 15 U.S.C. 78s(b)(2)(C). 13 15 U.S.C. 78q–1(b)(3)(F). 19 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 18:34 Mar 20, 2018 Jkt 244001 PO 00000 Frm 00116 Fmt 4703 Sfmt 9990 E:\FR\FM\21MRN1.SGM 21MRN1


Document Created: 2018-03-21 00:45:58
Document Modified: 2018-03-21 00:45:58
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
FR Citation83 FR 12447 
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