Self-Regulatory Organizations; LCH SA; Notice of Filing of Proposed Rule Change Relating to Recovery Risk Margin, 18488-18490 [2017-07872]
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18488
Federal Register / Vol. 82, No. 74 / Wednesday, April 19, 2017 / Notices
staff notes that, in its application,
WCNOC stated that:
jstallworth on DSK7TPTVN1PROD with NOTICES
The remaining 6.0% ownership interest in
WCGS held by [KEPCO] is unaffected by the
Merger.
The proposed merger will result in
one entity, Great Plains, indirectly
owning a combined interest in WCGS of
94 percent, as opposed to two entities,
Great Plains and Westar, each indirectly
owning a 47 percent interest in WCGS.
This does not affect the fact that, in
either case, KEPCO indirectly owns a 6
percent interest in WCGS. Whether, as
provided by KEPCO, the proposed
merger will decrease KEPCO’s influence
over the financial and strategic planning
for WCGS is not relevant to the NRC’s
review of the proposed indirect license
transfer application under AEA Section
184 and 10 CFR 50.80. The NRC’s
authority with respect to license transfer
applications is limited to evaluating
financial qualification,
decommissioning funding assurance,
management and technical support
organization, operating organization,
foreign ownership, control, or
domination, and nuclear insurance and
indemnity issues as they relate to the
public health and safety and the
common defense and security. The
relevant NRC regulatory requirements
do not apply to strategic business or
other corporate decisions and
considerations. Accordingly, the NRC
staff concludes that the concerns
identified by KEPCO do not impact its
conclusion regarding the proposed
indirect license transfer application.
Under 10 CFR 50.80, no license, or
any right thereunder, shall be
transferred, either directly or indirectly,
through transfer of control of the
license, unless the NRC gives its consent
in writing. Upon review of the
information in the application, and
other information before the
Commission, the NRC staff has
determined that WCNOC is qualified to
hold the license following the proposed
merger of Great Plains and Westar with
Westar becoming a wholly-owned
subsidiary of Great Plains. The NRC
staff has also determined that the
proposed indirect license transfer is
otherwise consistent with applicable
provisions of law, regulations, and
orders issued by the Commission
pursuant thereto.
The findings set forth above are
supported by an NRC safety evaluation
dated April 7, 2017, and available under
ADAMS Accession No. ML17037D120.
Energy Act of 1954, as amended, 42
U.S.C. 2201(b), 2201(i), and 2234; and
10 CFR 50.80, IT IS HEREBY ORDERED
that the application regarding the
proposed indirect license transfer is
approved.
IT IS FURTHER ORDERED that, after
receipt of all required regulatory
approvals of the proposed indirect
license transfer, WCNOC shall inform
the Director of the Office of Nuclear
Reactor Regulation in writing of such
receipt, and of the date of closing of the
transfer, no later than 5 business days
prior to the date of the closing of the
indirect license transfer. Should the
proposed indirect license transfer not be
completed within 1 year of this Order’s
date of issuance, this Order shall
become null and void, provided,
however, upon written application and
for good cause shown, such date may be
extended by order.
This Order is effective upon issuance.
For further details with respect to this
Order, see the application dated July 22,
2016 (ADAMS Accession No.
ML16208A250), and the NRC Safety
Evaluation dated April 7, 2017 (ADAMS
Accession No. ML17037D120), which
are available for public inspection at the
Commission’s Public Document Room
(PDR), located at One White Flint North,
Public File Area O1 F21, 11555
Rockville Pike (first floor), Rockville,
Maryland. Publicly available documents
created or received at the NRC are
accessible electronically through
ADAMS in the NRC Library at https://
www.nrc.gov/reading-rm/adams.html.
Persons who do not have access to
ADAMS, or who encounter problems in
accessing the documents located in
ADAMS, should contact the NRC PDR
reference staff by telephone at 1–800–
397–4209 or 301–415–4737, or by email
to pdr.resource@nrc.gov.
Dated at Rockville, Maryland this 7th day
of April 2017.
For the Nuclear Regulatory Commission,
Mary Jane Ross-Lee,
Acting Director, Division of Operating Reactor
Licensing, Office of Nuclear Reactor
Regulation.
[FR Doc. 2017–07894 Filed 4–18–17; 8:45 am]
BILLING CODE 7590–01–P
III.
Accordingly, pursuant to Sections
161b, 161i, and 184 of the Atomic
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–80450; File No. SR–LCH
SA–2017–003]
Self-Regulatory Organizations; LCH
SA; Notice of Filing of Proposed Rule
Change Relating to Recovery Risk
Margin
April 13, 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 April 4,
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. The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
LCH SA is proposing to revise its
margin methodology with respect to
credit default swaps (‘‘CDS’’) in the
Reference Guide: CDS Margin
Framework. The proposed rule change
will (i) eliminate the recovery rate risk
charge as a component of the margin
methodology as it applies to index CDS
(ii) correct a hyperlink and add a cross
reference and hyperlink to the general
inputs considered by LCH SA in
constructing the CDS pricing for
European and US dollar denominated
contracts.
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.
1 15
2 17
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
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Federal Register / Vol. 82, No. 74 / Wednesday, April 19, 2017 / Notices
jstallworth on DSK7TPTVN1PROD with NOTICES
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 revise LCH SA’s margin
methodology to eliminate the recovery
rate risk charge as a component of its
margin methodology for index CDS.
Currently, LCH SA applies a recovery
rate risk charge to both single-name CDS
and index CDS in a Clearing Member’s
portfolio. LCH SA considers recovery
rate a risk factor affecting the market
value of a CDS contract, in addition to
the credit spread as the primary risk
factor, and imposes a recovery rate risk
charge as an add-on component of
margin to address the adverse effect of
the recovery rate change on the profits
and losses of a Clearing Member’s
portfolio in the event of the recovery
rate moving in the most adverse
direction for each CDS instrument in the
portfolio. However, while the recovery
rate for a single-name CDS instrument
may vary from day to day, the concept
of ‘‘recovery rate’’ does not exist for
index CDS. In fact, market convention is
to assume a pre-defined recovery rate
for pricing an index CDS, such as a CDS
on iTraxx indices. Therefore, the credit
spread of an index CDS already reflects
both the probabilities of default and
recovery rate. Since the recovery rate
risk charge is designed to capture the
worst adverse effect of the recovery rate
moving in the most adverse direction,
applying the recovery rate risk charge to
the index CDS contracts cleared by LCH
SA would be trying to capture a stress
loss incurred in a Clearing Member’s
portfolio should the pre-defined
recovery rate for these index CDS
change, which is not consistent with
market convention in normal market
conditions. Therefore, LCH SA believes
that recovery rate risk is a superfluous
concept for index CDS and is proposing
to limit the application of the recovery
rate risk charge to single-name CDS.
Text is added to the beginning of
Section 6 of ‘‘Reference Guide: CDS
Margin Framework’’ to explain the
reason for including the Recovery Rate
Risk charge as a component of the
margin, in addition to the spread risk
considered in the VaR calculation. An
additional paragraph is added and
conforming changes are made to limit
the application of the Recovery Rate
Risk charge to single-name CDS.
In addition, LCH is also proposing to
correct a hyperlink and add a cross
reference and hyperlink to the general
inputs considered by LCH SA in
constructing the CDS pricing for
European and US dollar denominated
VerDate Sep<11>2014
15:06 Apr 18, 2017
Jkt 241001
contracts in Section 2.2 of ‘‘Reference
Guide: CDS Margin Framework’’. The
purpose of these changes is to enhance
readability and clarity of the Reference
Guide: CDS Margin Framework.
2. Statutory Basis
Section 17A(b)(3)(F) of the Act
requires, among other things, that the
rules of a clearing agency be designed to
assure safeguarding of securities and
funds which are in the custody or
control of the clearing agency or for
which it is responsible.3 LCH SA
believes that limiting the application of
the Recovery Rate Risk charge to singlename CDS would sufficiently capture
the stress loss that would result in the
event that recovery rates change in the
most adverse direction for each
instrument in a Clearing Member’s
portfolio. Since the recovery rate is set
at pre-defined levels with respect to
index CDS, the proposed rule change
would better align LCH SA’s margin
methodology with the way recovery rate
movements affect the CDS market value
in reality. LCH SA expects deviations
from the market convention with
respect to the pre-defined recovery rates
for index CDS only in extreme market
conditions, which would be captured by
LCH SA’s stress scenarios used to size
the Default Fund. Therefore, LCH SA
believes that the proposed rule change
is consistent with the requirement of
safeguarding securities and funds in
Section 17(A)(b)(3)(F) [sic] of the Act
and the requirements of maintaining
margin and limiting a clearing agency’s
exposures to potential losses from
participants’ defaults under normal
market conditions in Rule 17Ad–
22(b)(1) and (2).4
Moreover, LCH SA also believes that
the proposed rule change is consistent
with the requirements in Rule 17Ad–
22(e)(6).5 Rule 17Ad–22(e)(6) requires a
covered clearing agency that provides
central counterparty services to cover its
credit exposures to its participants by
establishing a risk-based margin system
that, among other things, calculates
margin sufficient to cover its potential
future exposure to participants in the
interval between the last margin
collection and the close out of positions
following a participant default and uses
an appropriate method for measuring
credit exposure that accounts for
relevant product risk factors and
portfolio effects across products.6 The
margin framework takes into account
appropriate risk factors that would
U.S.C. 78q–1(b)(3)(F).
CFR 240.17Ad–22(b)(1) and (2).
5 17 CFR 240.17Ad–22(e)(6).
6 17 CFR 240.17Ad–22(e)(6)(iii) and (v).
affect the market value of a CDS
contract, including credit spread and
recovery rate risk, and calculates margin
to include, among other things, spread
margin and recovery rate risk charge to
ensure sufficient coverage of its
potential future exposure to participants
in the interval between the last margin
collection and the close out of positions
following a participant default. As
stated above, the proposed rule change
to limit the application of the recovery
rate risk charge to single-name CDS
would better align LCH SA’s margin
methodology with the way recovery rate
movements affect the CDS market value
in reality and would improve LCH SA’s
margin methodology for measuring
credit exposure that accounts for
relevant product risk factors. Therefore,
LCH SA believes that the proposed rule
change is consistent with Rule 17Ad–
22(e)(6)(iii) and (v).7
Finally, Rule 17Ad–22(e)(1) provides
that a covered clearing agency shall
establish, implement, maintain and
enforce written policies and procedures
reasonably designed to provide for a
well-founded, clear, transparent, and
enforceable legal basis for each aspect of
its activities in all relevant jurisdiction.8
LCH SA believes that the proposed
modifications made to Section 2.2 of
‘‘Reference Guide: CDS Margin
Framework’’ will correct an error and
provide additional cross-reference
regarding the general inputs considered
by LCH SA in constructing CDS pricing
for European and US dollar
denominated contracts, and therefore,
will improve the clarity of the Reference
Guide and enable the Reference Guide
to provide a clear margin framework,
consistent with Rule 17Ad–22(e)(1).
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.9 LCH SA does not
believe the proposed rule change will
impose any burden on competition that
is not necessary or appropriate in
furtherance of the purposes of the Act.
While the proposed rule change may
result in various margin changes among
the participants, the revisions to the
margin methodology will uniformly
apply across all participants. In
addition, as stated above, the proposed
rule change is consistent with the
applicable requirements of the Act and
3 15
4 17
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18489
7 17
CFR 240.17Ad–22(e)(6)(iii) and (v).
CFR 240.17Ad–22(e)(1).
9 15 U.S.C. 78q–1(b)(3)(I).
8 17
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18490
Federal Register / Vol. 82, No. 74 / Wednesday, April 19, 2017 / Notices
is appropriate in order to better align
LCH SA’s margin methodology to the
way recovery rate movements affect the
CDS market value in reality. Therefore,
LCH SA does not believe that the
proposed rule change imposes any
burden on competition that is 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
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) by order approve or disapprove
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
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 such
filings will also be available for
inspection and copying at the principal
office of LCH SA and on LCH SA’s Web
site at https://www.lch.com/assetclasses/cdsclear. All comments received
will be posted without change; the
Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–LCH
SA–2017–003 and should be submitted
on or before May 10, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.10
Brent J. Fields,
Secretary.
[FR Doc. 2017–07872 Filed 4–18–17; 8:45 am]
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
LCH SA–2017–003 on the subject line.
jstallworth on DSK7TPTVN1PROD with NOTICES
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:
Self-Regulatory Organizations; Bats
BYX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change Related to Fees
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–2017–003. 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 (https://www.sec.gov/
VerDate Sep<11>2014
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BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–80447; File No. SR–
BatsBYX–2017–06]
April 13, 2017.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on March 31,
2017, Bats BYX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BYX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II and III
below, which Items have been prepared
by the Exchange. The Exchange has
designated the proposed rule change as
one establishing or changing a member
10 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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due, fee, or other charge imposed by the
Exchange under Section 19(b)(3)(A)(ii)
of the Act 3 and Rule 19b–4(f)(2)
thereunder,4 which renders the
proposed rule change effective upon
filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange filed a proposal to
amend the fee schedule applicable to
Members 5 and non-members of the
Exchange pursuant to BYX Rules 15.1(a)
and (c).
The text of the proposed rule change
is available at the Exchange’s Web site
at www.bats.com, at the principal office
of the Exchange, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange 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. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend its
fee schedule to: (i) Adopt fee code PL;
and (ii) modify its description of fee
code PX. The Exchange recently
implemented a new midpoint routing
strategy known as RMPL,6 under which
a MidPoint Peg Order 7 first checks the
3 15
U.S.C. 78s(b)(3)(A)(ii).
CFR 240.19b–4(f)(2).
5 The term ‘‘Member’’ is defined as ‘‘any
registered broker or dealer that has been admitted
to membership in the Exchange.’’ See Exchange
Rule 1.5(n).
6 See Securities Exchange Act Release No. 79603
(December 19, 2016), 81 FR 94440 (December 23,
2016) (SR–BatsBYX–2016–41) (‘‘RMPL Filing’’).
7 In sum, a MidPoint Peg Order is a non-displayed
Market Order or Limit Order with an instruction to
execute at the midpoint of the NBBO, or,
alternatively, pegged to the less aggressive of the
midpoint of the NBBO or one minimum price
variation inside the same side of the NBBO as the
order. See Exchange Rule 11.9(c)(9).
4 17
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]]>Agencies
[Federal Register Volume 82, Number 74 (Wednesday, April 19, 2017)]
[Notices]
[Pages 18488-18490]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-07872]
=======================================================================
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-80450; File No. SR-LCH SA-2017-003]
Self-Regulatory Organizations; LCH SA; Notice of Filing of
Proposed Rule Change Relating to Recovery Risk Margin
April 13, 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 April 4, 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. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
LCH SA is proposing to revise its margin methodology with respect
to credit default swaps (``CDS'') in the Reference Guide: CDS Margin
Framework. The proposed rule change will (i) eliminate the recovery
rate risk charge as a component of the margin methodology as it applies
to index CDS (ii) correct a hyperlink and add a cross reference and
hyperlink to the general inputs considered by LCH SA in constructing
the CDS pricing for European and US dollar denominated contracts.
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.
[[Page 18489]]
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 revise LCH SA's
margin methodology to eliminate the recovery rate risk charge as a
component of its margin methodology for index CDS.
Currently, LCH SA applies a recovery rate risk charge to both
single-name CDS and index CDS in a Clearing Member's portfolio. LCH SA
considers recovery rate a risk factor affecting the market value of a
CDS contract, in addition to the credit spread as the primary risk
factor, and imposes a recovery rate risk charge as an add-on component
of margin to address the adverse effect of the recovery rate change on
the profits and losses of a Clearing Member's portfolio in the event of
the recovery rate moving in the most adverse direction for each CDS
instrument in the portfolio. However, while the recovery rate for a
single-name CDS instrument may vary from day to day, the concept of
``recovery rate'' does not exist for index CDS. In fact, market
convention is to assume a pre-defined recovery rate for pricing an
index CDS, such as a CDS on iTraxx indices. Therefore, the credit
spread of an index CDS already reflects both the probabilities of
default and recovery rate. Since the recovery rate risk charge is
designed to capture the worst adverse effect of the recovery rate
moving in the most adverse direction, applying the recovery rate risk
charge to the index CDS contracts cleared by LCH SA would be trying to
capture a stress loss incurred in a Clearing Member's portfolio should
the pre-defined recovery rate for these index CDS change, which is not
consistent with market convention in normal market conditions.
Therefore, LCH SA believes that recovery rate risk is a superfluous
concept for index CDS and is proposing to limit the application of the
recovery rate risk charge to single-name CDS.
Text is added to the beginning of Section 6 of ``Reference Guide:
CDS Margin Framework'' to explain the reason for including the Recovery
Rate Risk charge as a component of the margin, in addition to the
spread risk considered in the VaR calculation. An additional paragraph
is added and conforming changes are made to limit the application of
the Recovery Rate Risk charge to single-name CDS.
In addition, LCH is also proposing to correct a hyperlink and add a
cross reference and hyperlink to the general inputs considered by LCH
SA in constructing the CDS pricing for European and US dollar
denominated contracts in Section 2.2 of ``Reference Guide: CDS Margin
Framework''. The purpose of these changes is to enhance readability and
clarity of the Reference Guide: CDS Margin Framework.
2. Statutory Basis
Section 17A(b)(3)(F) of the Act requires, among other things, that
the rules of a clearing agency be designed to assure safeguarding of
securities and funds which are in the custody or control of the
clearing agency or for which it is responsible.\3\ LCH SA believes that
limiting the application of the Recovery Rate Risk charge to single-
name CDS would sufficiently capture the stress loss that would result
in the event that recovery rates change in the most adverse direction
for each instrument in a Clearing Member's portfolio. Since the
recovery rate is set at pre-defined levels with respect to index CDS,
the proposed rule change would better align LCH SA's margin methodology
with the way recovery rate movements affect the CDS market value in
reality. LCH SA expects deviations from the market convention with
respect to the pre-defined recovery rates for index CDS only in extreme
market conditions, which would be captured by LCH SA's stress scenarios
used to size the Default Fund. Therefore, LCH SA believes that the
proposed rule change is consistent with the requirement of safeguarding
securities and funds in Section 17(A)(b)(3)(F) [sic] of the Act and the
requirements of maintaining margin and limiting a clearing agency's
exposures to potential losses from participants' defaults under normal
market conditions in Rule 17Ad-22(b)(1) and (2).\4\
---------------------------------------------------------------------------
\3\ 15 U.S.C. 78q-1(b)(3)(F).
\4\ 17 CFR 240.17Ad-22(b)(1) and (2).
---------------------------------------------------------------------------
Moreover, LCH SA also believes that the proposed rule change is
consistent with the requirements in Rule 17Ad-22(e)(6).\5\ Rule 17Ad-
22(e)(6) requires a covered clearing agency that provides central
counterparty services to cover its credit exposures to its participants
by establishing a risk-based margin system that, among other things,
calculates margin sufficient to cover its potential future exposure to
participants in the interval between the last margin collection and the
close out of positions following a participant default and uses an
appropriate method for measuring credit exposure that accounts for
relevant product risk factors and portfolio effects across products.\6\
The margin framework takes into account appropriate risk factors that
would affect the market value of a CDS contract, including credit
spread and recovery rate risk, and calculates margin to include, among
other things, spread margin and recovery rate risk charge to ensure
sufficient coverage of its potential future exposure to participants in
the interval between the last margin collection and the close out of
positions following a participant default. As stated above, the
proposed rule change to limit the application of the recovery rate risk
charge to single-name CDS would better align LCH SA's margin
methodology with the way recovery rate movements affect the CDS market
value in reality and would improve LCH SA's margin methodology for
measuring credit exposure that accounts for relevant product risk
factors. Therefore, LCH SA believes that the proposed rule change is
consistent with Rule 17Ad-22(e)(6)(iii) and (v).\7\
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\5\ 17 CFR 240.17Ad-22(e)(6).
\6\ 17 CFR 240.17Ad-22(e)(6)(iii) and (v).
\7\ 17 CFR 240.17Ad-22(e)(6)(iii) and (v).
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Finally, Rule 17Ad-22(e)(1) provides that a covered clearing agency
shall establish, implement, maintain and enforce written policies and
procedures reasonably designed to provide for a well-founded, clear,
transparent, and enforceable legal basis for each aspect of its
activities in all relevant jurisdiction.\8\ LCH SA believes that the
proposed modifications made to Section 2.2 of ``Reference Guide: CDS
Margin Framework'' will correct an error and provide additional cross-
reference regarding the general inputs considered by LCH SA in
constructing CDS pricing for European and US dollar denominated
contracts, and therefore, will improve the clarity of the Reference
Guide and enable the Reference Guide to provide a clear margin
framework, consistent with Rule 17Ad-22(e)(1).
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\8\ 17 CFR 240.17Ad-22(e)(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.\9\ LCH SA does
not believe the proposed rule change will impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. While the proposed rule change may result in
various margin changes among the participants, the revisions to the
margin methodology will uniformly apply across all participants. In
addition, as stated above, the proposed rule change is consistent with
the applicable requirements of the Act and
[[Page 18490]]
is appropriate in order to better align LCH SA's margin methodology to
the way recovery rate movements affect the CDS market value in reality.
Therefore, LCH SA does not believe that the proposed rule change
imposes any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
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\9\ 15 U.S.C. 78q-1(b)(3)(I).
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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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-LCH SA-2017-003 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-2017-003. 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 (https://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 such filings will also be available
for inspection and copying at the principal office of LCH SA and on LCH
SA's Web site at https://www.lch.com/asset-classes/cdsclear. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-LCH SA-2017-003 and should
be submitted on or before May 10, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2017-07872 Filed 4-18-17; 8:45 am]
BILLING CODE 8011-01-P
