83 FR 4083 - Order Granting Limited Exemptions From Rules 101 and 102 of Regulation M in Connection With Distributions of AT1 Contingent Convertible Securities Pursuant to Rules 101(d) and 102(e) of Regulation M
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 83, Issue 19 (January 29, 2018)
Federal Register Volume 83, Issue 19 (January 29, 2018)
| Page Range | 4083-4086 | |
| FR Document | 2018-01531 |
[Federal Register Volume 83, Number 19 (Monday, January 29, 2018)] [Notices] [Pages 4083-4086] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-01531] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-82575; File No. TP 18-08] Order Granting Limited Exemptions From Rules 101 and 102 of Regulation M in Connection With Distributions of AT1 Contingent Convertible Securities Pursuant to Rules 101(d) and 102(e) of Regulation M January 23, 2018. By letter dated January 23, 2018, counsel from Sullivan & Cromwell LLP and Davis Polk & Wardell LLP (collectively, the ``Applicants''),\1\ requested that the staff of the Division of Trading and Markets grant, on behalf of certain European financial institutions (each, an ``Issuer''), conditional class exemptive or no-action relief from Rules 101 and 102 of Regulation M under the Securities Exchange Act of 1934, as amended (the ``Exchange Act''), to permit certain transactions in ordinary shares underlying the contingent convertible debt securities qualifying as additional tier 1 capital (``AT1 Contingent Convertible Securities''), including ordinary shares represented by American depositary shares (collectively, ``Shares''), by Issuers and affiliated purchasers, including those acting as distribution participants, during a distribution of such AT1 Contingent Convertible Securities.\2\ --------------------------------------------------------------------------- \1\ Letter from John O'Connor, Sullivan & Cromwell LLP, and John Banes, Davis Polk & Wardell LLP, to Josephine J. Tao, Assistant Dir., Office of Derivatives Policy & Trading Practices, Div. of Trading & Mkts., SEC (Jan. 23, 2018) (the ``Request Letter''). \2\ The requested relief is solely to permit transactions in Shares during a distribution of an Issuer's AT1 Contingent Convertible Securities (i.e., the Request Letter does not seek relief with respect to transactions in the AT1 Contingent Convertible Securities themselves). For purposes of this relief, the terms ``affiliated purchasers'' and ``distribution participants'' shall have the same meaning as defined in Rule 100(b) of Regulation M. See 17 CFR 242.100(b). --------------------------------------------------------------------------- AT1 Contingent Convertible Securities Over the last several years, a number of European financial institutions have issued various series of AT1 Contingent Convertible Securities that are designed to qualify as additional tier 1 capital (``AT1 Capital'') that can be counted by a financial institution towards the capital requirements mandated by European regulators.\3\ --------------------------------------------------------------------------- \3\ Applicants represent in the Request Letter that the qualification requirements/features for AT1 Contingent Convertible Securities that qualify as AT1 Capital are set forth in the European Union's Capital Requirements Directive IV and related Capital Requirements Regulation (collectively, the ``CRD IV''), which were issued in response to the new global regulatory frameworks on bank capital adequacy and liquidity adopted by the Basel Committee on Banking Supervision in December 2010 (generally known as ``Basel III''). Applicants represent that the purpose of AT1 Capital is to absorb future losses through conversion to common equity (or write- down) so as to allow a financial institution to maintain sufficient Common Equity Tier 1 Capital to continue as a going concern. In addition, the basic equity-related-structure of AT1 Contingent Convertible Securities that qualify as AT1 Capital under CRD IV is summarized in the Request Letter. --------------------------------------------------------------------------- Applicants represent in the Request Letter that the AT1 Contingent Convertible Securities to be offered are fundamentally fixed-income debt securities that are priced and traded by investors as such.\4\ Applicants also represent in the Request Letter that, unlike traditional convertible debt instruments, the AT1 Contingent Convertible Securities to be offered automatically convert into Shares only upon the occurrence of a remote, capital adequacy-related trigger event that is set forth in the terms of the relevant AT1 Contingent Convertible Security. --------------------------------------------------------------------------- \4\ Applicants also represent that Issuers have previously indicated that they expect AT1 Contingent Convertible Securities to price and trade more like traditional fixed-income debt instruments than conventional convertible instruments (i.e., that investors in AT1 Contingent Convertible Securities are generally focused on receiving interest payments during the life of the AT1 Contingent Convertible Securities rather than any potential equity upside in the unlikely event of a conversion into Shares), citing to prior requests for relief from Rules 101 and 102 of Regulation M in connection with offerings of AT1 Contingent Convertible Securities: Letter from Josephine J. Tao, Assistant Dir., Office of Derivatives Policy & Trading Practices, Div. of Trading & Mkts., SEC, to Mark J. Welshimer, Sullivan & Cromwell LLP (Apr. 7, 2015) (ING Groep N.V.); Letter from Josephine J. Tao, Assistant Dir., Office of Derivatives Policy & Trading Practices, Div. of Trading & Mkts., SEC, to John Banes, Davis Polk & Wardwell London LLP (Mar. 6, 2014) (Lloyds Banking Group); Letter from Josephine J. Tao, Assistant Dir., Office of Derivatives Policy & Trading Practices, Div. of Trading & Mkts., SEC, to George H. White, Sullivan & Cromwell LLP (Nov. 7, 2013) (Barclays PLC); Letter From Josephine J. Tao, Assistant Dir., Office of Derivatives Policy & Trading Practices, Div. of Trading & Mkts., SEC, to Michael J. Willisch, Davis Polk & Wardwell Spain LLP (Nov. 3, 2017) (Banco Bilbao Vizcaya Argentaria, S.A.). --------------------------------------------------------------------------- Specifically, Applicants represent, among other things, the following:Relief is requested only with respect to AT1 Contingent Convertible Securities that automatically and mandatorily convert into Shares if the Issuer's Common Equity Tier 1 Capital Ratio (as calculated in accordance with CRD IV) falls below a pre-determined trigger level of 7.0% or lower; \5\ --------------------------------------------------------------------------- \5\ Applicants represent that guidance from the UK Prudential Regulation Authority will generally result in a 7.0% trigger level for AT1 Contingent Convertible Securities issued by UK financial institutions, which is intended to ensure that only instruments that will reliably absorb losses while a firm is still a going concern can count towards the leverage ratio under CRD IV. Applicants represent that the applicable 7.0% threshold is equivalent to the sum of the basic 4.5% minimum for Common Equity Tier 1 Capital under CRD IV and the additional 2.5% capital conservation buffer that is also required to be satisfied with Common Equity Tier 1 Capital under CRD IV. --------------------------------------------------------------------------- A Common Equity Tier 1 Capital Ratio below 7.0% is effectively a sign of distress, and conversion of AT1 Contingent Convertible Securities with a trigger level of 7.0% or lower is unlikely to occur as a result of actions within an Issuer's control; Because of the perceived severity of the regulatory sanctions that would otherwise apply to an Issuer who allows its Common Equity Tier 1 Capital Ratio to fall below its Combined Buffer Requirement,\6\ Issuers have a strong [[Page 4084]] incentive to maintain capital levels, and investors expect such Issuers to maintain capital levels, well in excess of the pre-determined trigger level; \7\ --------------------------------------------------------------------------- \6\ In addition to the basic 4.5% minimum Common Equity Tier 1 Capital Ratio under CRD IV, there is a Combined Buffer Requirement applicable to any institution that is incremental to the minimum requirement and is composed of (1) in all cases, an additional 2.5% capital conservation buffer (with the consequence that the sum of the basic minimum and the Combined Buffer Requirement is never less than 7.0%), and (2) at least three other potential buffers--namely, (i) an institution-specific counter-cyclical capital buffer (which may be disapplied by member states to small and medium-sized institutions), (ii) a member state-specific systemic risk buffer, and (iii) any applicable systemically important institution buffers. \7\ Applicants represent that the CRD IV regulatory sanctions include automatic limitations on distributions (such as the ability to pay dividends) and compensation that create significant disincentives for an Issuer to allow its Common Equity Tier I Capital Ratio to fall below the applicable Combined Buffer Requirement. --------------------------------------------------------------------------- Because the risk of regulatory capital falling below the pre-determined trigger level is considered remote at the time of the issuance, the price of the Shares is not expected to have a significant impact on pricing or market demand for AT1 Contingent Convertible Securities at the time of issuance; Because AT1 Contingent Convertible Securities would convert only if Common Equity Tier 1 Capital fell below the pre- determined trigger level of at least 7.0%, which would, effectively, indicate distress of the Issuer, investors do not purchase AT1 Contingent Convertible Securities in the initial distribution of AT1 Contingent Convertible Securities to have the possibility of acquiring Shares in a conversion or to increase their exposure to the Issuer's common equity (i.e., investors, instead, are focused primarily on receiving interest payments during the life of the AT1 Contingent Convertible Securities); Accordingly, trading activity in the Shares at or around the time of distribution is unlikely to influence the pricing or trading of the AT1 Contingent Convertible Securities that would be in distribution. I. Rules 101 and 102 of Regulation M Rule 101 of Regulation M is an anti-manipulation rule that, subject to certain exceptions, prohibits any ``distribution participant'' (i.e., underwriters, brokers, dealers, or other persons who have agreed to participate or are participating in a distribution of securities) and its ``affiliated purchasers'' from bidding for, purchasing, or attempting to induce any person to bid for or purchase, any security that is the subject of a distribution until after the applicable restricted period, except as specifically permitted in the Rule. Rule 102 of Regulation M includes the same prohibitions but applies to issuers, selling security holders, and any of their affiliated purchasers. Regulation M applies to activities in both the securities in distribution (i.e., activities in the ``subject securities'') and any ``reference securities,'' such as common stock underlying an exercisable, exchangeable, or convertible security that is being distributed.\8\ Accordingly, the Issuer's Shares may be deemed to be ``reference securities'' in relation to the AT1 Contingent Convertible Securities. Thus, Regulation M would prohibit Issuers and any affiliated purchasers from making any bids for, purchases of, or attempts to induce any other person to bid for or purchase the Shares during an applicable restricted period in connection with a distribution of the Issuer's AT1 Contingent Convertible Securities. --------------------------------------------------------------------------- \8\ See Anti-Manipulation Rules Concerning Securities Offerings, Exchange Act Rel. No. 38067 (Dec. 20, 1996), 62 FR 520 (Jan. 3, 1997) (stating that transactions in ``reference securities'' can have a direct and substantial effect on the pricing and terms of the security in distribution). --------------------------------------------------------------------------- Discussion Based on the representations and facts presented in the Request Letter--particularly, that a distribution of AT1 Contingent Convertible Securities that satisfies the conditions set forth in the Request Letter, as well as below, does not raise the concerns at which Regulation M is directed and that any bids for, purchases of, or attempts to induce any other person to bid for or purchase of the Shares by Issuers or affiliated purchasers during an applicable restricted period in connection with a distribution of the Issuer's AT1 Contingent Convertible Securities would be unlikely, except in unusual circumstances, to affect the pricing or trading of the AT1 Contingent Convertible Securities \9\--the U.S. Securities and Exchange Commission (the ``Commission'') finds that it is appropriate in the public interest and consistent with the protection of investors to grant class exemptive relief from the requirements of Rule 101 and Rule 102, under paragraph (d) of Rule 101 and paragraph (e) of Rule 102 of Regulation M, respectively, in connection with distributions of AT1 Contingent Convertible Securities that satisfy the conditions set forth below to permit transactions involving Shares by an Issuer and its affiliated purchasers (including those acting as distribution participants) during a distribution of such AT1 Contingent Convertible Securities.\10\ --------------------------------------------------------------------------- \9\ In particular, that AT1 Contingent Convertible Securities do not convert to equity unless the Issuer's regulatory capital falls below a pre-determined trigger level, and that the price of and trading activity in Shares at or around the time of a distribution is not expected to influence or have a significant impact on pricing or market demand for the AT1 Contingent Convertible Securities at the time of issuance. \10\ Consistent with the limited scope of relief sought in the Request Letter, the relief granted herein, however, does not extend to transactions in the AT1 Contingent Convertible Securities themselves. Transactions in the AT1 Contingent Convertible Securities that are being distributed would need to comply with the requirements of Regulation M and/or qualify for one of the exceptions provided under Regulation M. --------------------------------------------------------------------------- Consistent with the limited scope of relief sought in the Request Letter, this relief is limited to distributions of AT1 Contingent Convertible Securities by or on behalf of a ``foreign private issuer'' (within the meaning of Rule 3b-4 under the Exchange Act) and where the ``principal market'' (as such term is defined in Rule 100 of Regulation M) of the underlying Shares is outside of the United States. This condition narrowly tailors the relief's application to Issuers who engage in distributions of the AT1 Contingent Convertible Securities that are the subject of this relief and ensures that the Issuers of such securities are subject to the information reporting requirements of the Exchange Act. Limiting the scope of the relief in this way should help to reduce the potential risk of transactions in Shares that could adversely affect U.S. markets during a distribution of a non-U.S. Issuer's AT1 Contingent Convertible Securities. This relief is also limited to distributions of AT1 Contingent Convertible Securities that automatically and mandatorily convert into Shares if an Issuer's Common Equity Tier 1 Capital Ratio (as calculated in accordance with CRD IV) falls below a predetermined trigger level of 7.0% or lower. Applicants represent in the Request Letter that a Common Equity Tier 1 Capital Ratio below 7.0% is considered, under guidance from the UK Prudential Regulation Authority, to be effectively a sign of distress, and conversion of AT1 Contingent Convertible Securities with a trigger level of 7.0% or lower is unlikely to occur as a result of actions within an Issuer's control. As such, this condition is intended to further ensure the remoteness of any possibility of conversion of the AT1 Contingent Convertible Securities, thus also decreasing the likelihood of any trading activity in Shares during such distributions affecting the pricing or demand for the AT1 Contingent Convertible Securities being distributed. This relief also requires that, as of the date of the most recent calculation required to be reported to the relevant [[Page 4085]] supervising authority under applicable regulatory capital rules prior to the distribution of the AT1 Contingent Convertible Securities, the Issuer's Common Equity Tier 1 Capital Ratio must exceed the applicable Combined Buffer Requirement.\11\ This condition, which conforms to applicable regulatory capital rules, is intended to ensure that the Issuer maintains capital levels that are sufficiently above the pre- determined trigger level at the time of distribution of the AT1 Contingent Convertible Securities.\12\ Accordingly, this condition helps to ensure the remoteness of any possibility of conversion of the AT1 Contingent Convertible Securities and, thus, to decrease the likelihood of any trading activity in Shares during such distributions affecting the pricing or demand for the AT1 Contingent Convertible Securities being distributed. --------------------------------------------------------------------------- \11\ See supra note 6. \12\ As mentioned above, because of the perceived severity of regulatory sanctions that would apply to an Issuer that allows its Common Equity Tier I Capital Ratio to decline below the applicable Combined Buffer Requirement, it is expected that Issuers will maintain capital levels well in excess of the predetermined trigger level. --------------------------------------------------------------------------- In addition, this relief applies only to AT1 Contingent Convertible Securities in distribution that do not include any right of the Issuer or holders to convert the AT1 Contingent Convertible Securities into Shares at their option. This condition is intended to help to ensure the remoteness of any possibility of conversion of the AT1 Contingent Convertible Securities and, thus, to decrease the likelihood of trading activity in Shares affecting the pricing or demand for the AT1 Contingent Convertible Securities in distribution. This relief also requires that any transactions in Shares by an Issuer or any of its affiliated purchasers must be effected in the ordinary course of business and not to facilitate the distribution of the AT1 Contingent Convertible Securities. This condition should help to ensure that transactions in Shares are more customer-driven rather than driven by market activities that could potentially be used to artificially facilitate the distribution of the AT1 Contingent Convertible Securities or unduly impact the pricing of or demand for the AT1 Contingent Convertible Securities in distribution. To ensure adequate transparency to potential U.S. investors in the offering, this relief also requires that any prospectus or other offering document that is distributed to U.S. investors in connection with the offering of the AT1 Contingent Convertible Securities must disclose the possibility of, or the intention to engage in, transactions in Shares by an Issuer or its affiliated purchasers. This relief is also limited to Shares that qualify for the actively-traded securities exception under Rule 101(c)(1) of Regulation M because such securities are viewed by the Commission to be less susceptible to manipulation. This limitation should also help to reduce the impact of any attempt to artificially influence the price of the AT1 Contingent Convertible Securities that are being distributed by engaging in transactions in the Shares at or around the time of a distribution. II. Conclusion It is hereby ordered, pursuant to Rule 101(d) and Rule 102(e) of Regulation M, that, based on the representations and facts presented in the Request Letter, class exemptive relief from the requirements of Rules 101 and Rule 102, respectively, is granted in connection with distributions of AT1 Contingent Convertible Securities that satisfy the conditions set forth below to permit transactions involving Shares by an Issuer and its affiliated purchasers (including affiliated purchasers who may be deemed to be participating in a distribution of such Issuer's ATI Contingent Convertible Securities) during a distribution of such AT1 Contingent Convertible Securities, as described in the Request Letter and herein, subject to the following conditions: (1) The Issuer of the AT1 Contingent Convertible Securities must be a foreign private issuer (within the meaning of Rule 3b-4 under the Exchange Act); (2) The principal market (within the meaning of Rule 100 of Regulation M) of Shares must be outside of the United States; (3) The AT1 Contingent Convertible Securities in distribution must only automatically and mandatorily convert into the Issuer's Shares if the Issuer's Common Equity Tier 1 Capital Ratio (as calculated in accordance with CRD IV) falls below a pre-determined trigger level of 7.0% or lower; (4) As of the date of the most recent calculation that is required to be reported to the relevant supervising authority under applicable regulatory capital rules prior to the distribution of the AT1 Contingent Convertible Securities, the Issuer's Common Equity Tier 1 Capital Ratio must exceed the applicable Combined Buffer Requirement; (5) The AT1 Contingent Convertible Securities in distribution must not include any right of the Issuer or holders to convert the AT1 Contingent Convertible Securities into Shares at their option; (6) Any transactions in Shares by the Issuer or any of its affiliated purchasers must be effected in the ordinary course of business and not for the purpose of facilitating the distribution of the AT1 Contingent Convertible Securities; (7) Any prospectus or other offering document that is distributed to U.S. investors in connection with the offering of the AT1 Contingent Convertible Securities must disclose the possibility of, or the intention to engage in, transactions in Shares by the Issuer or its affiliated purchasers; (8) Shares must have an ADTV (within the meaning of Rule 100 of Regulation M) value of at least $1 million during the two full calendar months immediately preceding, or any consecutive 60 calendar days ending within the 10 calendar days preceding, the determination of the offering price, and Shares must be issued by an Issuer whose common equity securities have a public float value (within the meaning of Rule 100 of Regulation M) of at least $150 million; and (9) Except as otherwise exempted herein, the issuance of the AT1 Contingent Convertible Securities shall remain subject to the provisions of Regulation M. In the event that any material change occurs in the facts or representations in the Request Letter, the Applicants shall promptly present for consideration the facts to staff in the Division of Trading and Markets. This exemption is subject to modification or revocation at any time the Commission determines that such action is necessary or appropriate in furtherance of the purposes of the Exchange Act. In addition, persons relying on this limited exemption are directed to the anti-fraud and anti-manipulation provisions of the Exchange Act, particularly Sections 9(a) and 10(b), and Rule 10b-5 thereunder. Responsibility for compliance with these and any other applicable provisions of the federal securities laws must rest with the persons relying on this exemption. This Order should not be considered a view with respect to any other question that the proposed transactions may raise, including, but not limited to the adequacy of the disclosure concerning, and the applicability of other federal or state laws to, the proposed transactions. [[Page 4086]] For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\13\ Brent J. Fields, Secretary. --------------------------------------------------------------------------- \13\ 17 CFR 200.30-3(a)(6) and (9). --------------------------------------------------------------------------- [FR Doc. 2018-01531 Filed 1-26-18; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 83, No. 19 / Monday, January 29, 2018 / Notices 4083
required by Exchange Act Rule 17a– of certain European financial represent in the Request Letter that,
5(b).1 institutions (each, an ‘‘Issuer’’), unlike traditional convertible debt
Commission staff anticipates that the conditional class exemptive or no-action instruments, the AT1 Contingent
national securities exchanges and relief from Rules 101 and 102 of Convertible Securities to be offered
registered national securities Regulation M under the Securities automatically convert into Shares only
associations collectively will make 800 Exchange Act of 1934, as amended (the upon the occurrence of a remote, capital
total filings annually pursuant to Rule ‘‘Exchange Act’’), to permit certain adequacy-related trigger event that is set
17a–19 and that each filing will take transactions in ordinary shares forth in the terms of the relevant AT1
approximately 15 minutes. The total underlying the contingent convertible Contingent Convertible Security.
reporting burden is estimated to be debt securities qualifying as additional Specifically, Applicants represent,
approximately 200 total annual hours. tier 1 capital (‘‘AT1 Contingent among other things, the following:
An agency may not conduct or Convertible Securities’’), including • Relief is requested only with
sponsor, and a person is not required to ordinary shares represented by respect to AT1 Contingent Convertible
respond to, a collection of information American depositary shares Securities that automatically and
under the PRA unless it displays a (collectively, ‘‘Shares’’), by Issuers and mandatorily convert into Shares if the
currently valid OMB control number. affiliated purchasers, including those Issuer’s Common Equity Tier 1 Capital
The public may view background acting as distribution participants, Ratio (as calculated in accordance with
documentation for this information during a distribution of such AT1 CRD IV) falls below a pre-determined
collection at the following website: Contingent Convertible Securities.2 trigger level of 7.0% or lower; 5
www.reginfo.gov. Comments should be • A Common Equity Tier 1 Capital
directed to: (i) Desk Officer for the AT1 Contingent Convertible Securities Ratio below 7.0% is effectively a sign of
Securities and Exchange Commission, Over the last several years, a number distress, and conversion of AT1
Office of Information and Regulatory of European financial institutions have Contingent Convertible Securities with a
Affairs, Office of Management and issued various series of AT1 Contingent trigger level of 7.0% or lower is unlikely
Budget, Room 10102, New Executive Convertible Securities that are designed to occur as a result of actions within an
Office Building, Washington, DC 20503, to qualify as additional tier 1 capital Issuer’s control;
or by sending an email to: Shagufta_ (‘‘AT1 Capital’’) that can be counted by • Because of the perceived severity of
Ahmed@omb.eop.gov; and (ii) Pamela a financial institution towards the the regulatory sanctions that would
Dyson, Director/Chief Information capital requirements mandated by otherwise apply to an Issuer who allows
Officer, Securities and Exchange European regulators.3 its Common Equity Tier 1 Capital Ratio
Commission, c/o Remi Pavlik-Simon, Applicants represent in the Request to fall below its Combined Buffer
100 F Street NE, Washington, DC 20549, Letter that the AT1 Contingent Requirement,6 Issuers have a strong
or by sending an email to: PRA_ Convertible Securities to be offered are
Mailbox@sec.gov. Comments must be fundamentally fixed-income debt equity upside in the unlikely event of a conversion
securities that are priced and traded by into Shares), citing to prior requests for relief from
submitted to OMB within 30 days of Rules 101 and 102 of Regulation M in connection
this notice. investors as such.4 Applicants also with offerings of AT1 Contingent Convertible
Securities: Letter from Josephine J. Tao, Assistant
Dated: January 24, 2018. 2 The requested relief is solely to permit Dir., Office of Derivatives Policy & Trading
Eduardo A. Aleman, transactions in Shares during a distribution of an Practices, Div. of Trading & Mkts., SEC, to Mark J.
Assistant Secretary. Issuer’s AT1 Contingent Convertible Securities (i.e., Welshimer, Sullivan & Cromwell LLP (Apr. 7, 2015)
the Request Letter does not seek relief with respect (ING Groep N.V.); Letter from Josephine J. Tao,
[FR Doc. 2018–01599 Filed 1–26–18; 8:45 am] to transactions in the AT1 Contingent Convertible Assistant Dir., Office of Derivatives Policy &
BILLING CODE 8011–01–P Securities themselves). For purposes of this relief, Trading Practices, Div. of Trading & Mkts., SEC, to
the terms ‘‘affiliated purchasers’’ and ‘‘distribution John Banes, Davis Polk & Wardwell London LLP
participants’’ shall have the same meaning as (Mar. 6, 2014) (Lloyds Banking Group); Letter from
defined in Rule 100(b) of Regulation M. See 17 CFR Josephine J. Tao, Assistant Dir., Office of
SECURITIES AND EXCHANGE 242.100(b). Derivatives Policy & Trading Practices, Div. of
COMMISSION 3 Applicants represent in the Request Letter that Trading & Mkts., SEC, to George H. White, Sullivan
the qualification requirements/features for AT1 & Cromwell LLP (Nov. 7, 2013) (Barclays PLC);
[Release No. 34–82575; File No. TP 18–08] Letter From Josephine J. Tao, Assistant Dir., Office
Contingent Convertible Securities that qualify as
AT1 Capital are set forth in the European Union’s of Derivatives Policy & Trading Practices, Div. of
Order Granting Limited Exemptions Capital Requirements Directive IV and related Trading & Mkts., SEC, to Michael J. Willisch, Davis
From Rules 101 and 102 of Regulation Capital Requirements Regulation (collectively, the Polk & Wardwell Spain LLP (Nov. 3, 2017) (Banco
M in Connection With Distributions of ‘‘CRD IV’’), which were issued in response to the Bilbao Vizcaya Argentaria, S.A.).
new global regulatory frameworks on bank capital 5 Applicants represent that guidance from the UK
AT1 Contingent Convertible Securities adequacy and liquidity adopted by the Basel Prudential Regulation Authority will generally
Pursuant to Rules 101(d) and 102(e) of Committee on Banking Supervision in December result in a 7.0% trigger level for AT1 Contingent
Regulation M 2010 (generally known as ‘‘Basel III’’). Applicants Convertible Securities issued by UK financial
represent that the purpose of AT1 Capital is to institutions, which is intended to ensure that only
January 23, 2018. absorb future losses through conversion to common instruments that will reliably absorb losses while a
By letter dated January 23, 2018, equity (or write-down) so as to allow a financial firm is still a going concern can count towards the
institution to maintain sufficient Common Equity leverage ratio under CRD IV. Applicants represent
counsel from Sullivan & Cromwell LLP Tier 1 Capital to continue as a going concern. In that the applicable 7.0% threshold is equivalent to
and Davis Polk & Wardell LLP addition, the basic equity-related-structure of AT1 the sum of the basic 4.5% minimum for Common
(collectively, the ‘‘Applicants’’),1 Contingent Convertible Securities that qualify as Equity Tier 1 Capital under CRD IV and the
requested that the staff of the Division AT1 Capital under CRD IV is summarized in the additional 2.5% capital conservation buffer that is
Request Letter. also required to be satisfied with Common Equity
sradovich on DSK3GMQ082PROD with NOTICES
of Trading and Markets grant, on behalf 4 Applicants also represent that Issuers have Tier 1 Capital under CRD IV.
previously indicated that they expect AT1 6 In addition to the basic 4.5% minimum
1 17 CFR 240.17a–5(b). Contingent Convertible Securities to price and trade Common Equity Tier 1 Capital Ratio under CRD IV,
1 Letter from John O’Connor, Sullivan & Cromwell more like traditional fixed-income debt instruments there is a Combined Buffer Requirement applicable
LLP, and John Banes, Davis Polk & Wardell LLP, to than conventional convertible instruments (i.e., that to any institution that is incremental to the
Josephine J. Tao, Assistant Dir., Office of investors in AT1 Contingent Convertible Securities minimum requirement and is composed of (1) in all
Derivatives Policy & Trading Practices, Div. of are generally focused on receiving interest cases, an additional 2.5% capital conservation
Trading & Mkts., SEC (Jan. 23, 2018) (the ‘‘Request payments during the life of the AT1 Contingent buffer (with the consequence that the sum of the
Letter’’). Convertible Securities rather than any potential Continued
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![4086 Federal Register / Vol. 83, No. 19 / Monday, January 29, 2018 / Notices
For the Commission, by the Division of forth in sections A, B, and C below, of INET architecture.9 This migration
Trading and Markets, pursuant to delegated the most significant aspects of such included the adoption of new
authority.13 statements. connectivity, including OTTO, CTI, FIX,
Brent J. Fields, FIX Drop, and Disaster Recovery Ports,
A. Self-Regulatory Organization’s
Secretary. which are the same as connectivity
Statement of the Purpose of, and
[FR Doc. 2018–01531 Filed 1–26–18; 8:45 am] options currently used to connect to the
Statutory Basis for, the Proposed Rule Exchange’s affiliate options markets,
BILLING CODE 8011–01–P
Change including The Nasdaq Stock Market
1. Purpose (‘‘Nasdaq’’), Nasdaq BX (‘‘BX’’), Nasdaq
SECURITIES AND EXCHANGE GEMX (‘‘GEMX’’) and Nasdaq Phlx
COMMISSION The purpose of the proposed rule (‘‘Phlx’’).10 When the Exchange adopted
change is to amend the Schedule of these new ports it did not assess a fee
[Release No. 34–82568; File No. SR–ISE– Fees 3 to assess fees for OTTO 4 Port,
2018–07] for them so that members would not be
CTI 5 Port, FIX 6 Port, FIX Drop 7 Port double charged for connectivity to the
and Disaster Recovery Port 8 old Exchange architecture and the new
Self-Regulatory Organizations; Nasdaq
connectivity. The Exchange has Nasdaq INET architecture.11
ISE, LLC; Notice of Filing and
completed the migration of the The Exchange is proposing to amend
Immediate Effectiveness of Proposed
Exchange’s trading system to the Nasdaq the Nasdaq ISE Schedule of Fees
Rule Change To Assess Fees for OTTO
Port, CTI Port, FIX Port, FIX Drop Port Section V.D. to assess a fee of $400 per
and Disaster Recovery Port
3 The Exchange initially filed the proposed
month, per port, per mnemonic 12 for
pricing changes on January 2, 2018 (SR–ISE–2018– OTTO Ports, $500 per port, per month,
Connectivity 01). On January 16, 2018, the Exchange withdrew
that filing and on January 19, 2018 submitted this
per account number 13 for CTI Ports,
January 23, 2018. filing, making certain clarifying changes. The $300 per port per month, per mnemonic
Pursuant to Section 19(b)(1) of the Exchange represents that it has not added new for FIX Ports, and $500 per port per
Securities Exchange Act of 1934 subscriptions or canceled existing subscriptions to month per account number for FIX Drop
the ports described in this filing between the time
(‘‘Act’’),1 and Rule 19b–4 thereunder,2 it withdrew the original proposal and the
Ports. The Exchange is proposing to
notice is hereby given that on January submission of this filing. assess a fee of $50 per month, per port
19, 2018, Nasdaq ISE, LLC (‘‘ISE’’ or 4 OTTO is an interface that allows market for Disaster Recovery Ports. The
‘‘Exchange’’) filed with the Securities participants to connect and send orders, auction Exchange notes that it is adding ‘‘per
and Exchange Commission orders and auction responses into ISE. Data account number’’ to the CTI and FIX
includes the following: (1) Options Auction
(‘‘Commission’’) the proposed rule Notifications (e.g., Flash, PIM, Solicitation and
Drop Port fees described above to clarify
change as described in Items I, II, and Facilitation or other information); (2) Options that billing for the ports is based on how
III, below, which Items have been Symbol Directory Messages; (3) System Event many account numbers that a member
prepared by the Exchange. The Messages (e.g., start of messages, start of system associates with a port, which will allow
hours, start of quoting, start of opening); (5) Option
Commission is publishing this notice to Trading Action Messages (e.g., halts, resumes); (6)
the Exchange to determine a member’s
solicit comments on the proposed rule Execution Messages; (7) Order Messages (order use of a port more precisely. The
change from interested persons. messages, risk protection triggers or purge Exchange notes that this is the method
notifications). by which GEMX bills these fees.14 The
I. Self-Regulatory Organization’s 5 CTI is a real-time clearing trade update is a
Exchange is proposing to add ‘‘per
Statement of the Terms of Substance of message that is sent to a member after an execution
mnemonic’’ to OTTO and FIX Port fees,
the Proposed Rule Change has occurred and contains trade details. The
message containing the trade details is also which will allow the Exchange to more
The Exchange proposes to amend the simultaneously sent to The Options Clearing granularly identify use of such ports.15
Schedule of Fees to assess fees for Corporation. The information includes, among The Exchange notes that this is how the
other things, the following: (i) The Clearing Member
OTTO Port, CTI Port, FIX Port, FIX Drop Trade Agreement or ‘‘CMTA’’ or The Options
Port and Disaster Recovery Port Clearing Corporation or ‘‘OCC’’ number; (ii)
9 See Securities Exchange Act Release No. 80432
connectivity. The text of the proposed Exchange badge or house number; (iii) the Exchange (April 11, 2017), 82 FR 18191 (April 17, 2017) (SR–
internal firm identifier; and (iv) an indicator which ISE–2017–03).
rule change is available on the 10 See Nasdaq Option Rules, Chapter XV Options
will distinguish electronic and non-electronically
Exchange’s website at www.ise.com, at delivered orders; (v) liquidity indicators and Pricing, Sec. 3 Nasdaq Options Market—Ports and
the principal office of the Exchange, and transaction type for billing purposes; (vi) capacity. other Services; BX Option Rules, Chapter XV
at the Commission’s Public Reference 6 FIX is an interface that allows market Options Pricing, Sec. 3 BX Options Market—Ports
participants to connect and send orders and auction and other Services; Nasdaq GEMX Schedule of Fees
Room. Section IV.E.3; and Phlx Pricing Schedule, VII.
orders into ISE. Data includes the following: (1)
Other Member Fees, B. Port Fees.
II. Self-Regulatory Organization’s Options Symbol Directory Messages; (2) System
11 See Securities Exchange Release No. 81095
Statement of the Purpose of, and Event Messages (e.g., start of messages, start of
system hours, start of quoting, start of opening); (3) (July 7, 2017), 82 FR 32409 (July 13, 2017) (SR–ISE–
Statutory Basis for, the Proposed Rule Option Trading Action Messages (e.g., halts, 2017–62).
Change resumes); (4) Execution Messages; (5) Order 12 A mnemonic is a unique identifier assigned to
Messages (order messages, risk protection triggers or a member consisting of a four character code. A
In its filing with the Commission, the purge notifications). member may be assigned multiple mnemonics,
Exchange included statements 7 FIX Drop is a real-time order and execution which are used to segregate a member’s order flow
concerning the purpose of and basis for update is a message that is sent to a member after based on its business and regulatory needs. Every
an order been received/modified or an execution mnemonic must be affiliated with an account
the proposed rule change and discussed number held by the member. Account numbers are
has occurred and contains trade details. The
any comments it received on the information includes, among other things, the numeric codes used to identify members and the
sradovich on DSK3GMQ082PROD with NOTICES
proposed rule change. The text of these following: (1) Executions; (2) cancellations; (3) default clearing information through which all
statements may be examined at the modifications to an existing order; (4) busts or post- order flow affiliated with that account number will
trade corrections. clear. A member may be assigned multiple account
places specified in Item IV below. The numbers.
8 Disaster Recovery Ports provide connectivity to
Exchange has prepared summaries, set 13 An account number may have multiple
the Exchange’s disaster recovery data center in
Chicago to be utilized in the event the exchange has mnemonics affiliated with it. See id.
13 17 CFR 200.30–3(a)(6) and (9). 14 See Nasdaq GEMX Schedule of Fees Section
to fail over during the trading day. Disaster
1 15 U.S.C. 78s(b)(1). IV.E.3.
Recovery Ports are available for SQF, SQF Purge,
2 17 CFR 240.19b–4. CTI, OTTO, FIX and FIX Drop. 15 Supra note 12.
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Document Created: 2018-01-27 00:57:44
Document Modified: 2018-01-27 00:57:44
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 83 FR 4083 |
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