Self-Regulatory Organizations; LCH SA; Notice of Proposed Rule Change, Security-Based Swap Submission, or Advance Notice Relating to LCH SA's Recovery Plan, 60246-60252 [2017-27235]

Download as PDF 60246 Federal Register / Vol. 82, No. 242 / Tuesday, December 19, 2017 / Notices settlement processes. As noted above, by formalizing the CCRM Policy, OCC is organizing and describing in a central location the policies and procedures that compose its framework for the comprehensive management of credit risk. The CCRM Policy specifically describes the various processes by which OCC identifies, measures, monitors, and manages its credit exposures arising from its payment, clearing, and settlement processes. Accordingly, the Commission finds that the proposed changes are consistent with Rules 17Ad–22(e)(3) and (e)(4).15 sradovich on DSK3GMQ082PROD with NOTICES C. Consistency With Rule 17Ad– 22(e)(16) Rule 17Ad–22(e)(16) 16 requires each covered clearing agency to establish, implement, maintain and enforce written policies and procedures reasonably designed to among other things, safeguard the covered clearing agency’s own and its participants’ assets and minimize the risk of loss and delay in access to these assets. According to OCC, the access and participation requirements for Commercial and Central Banks outlined in the CCRM Policy enable it to appropriately evaluate each bank against relevant minimum standards of creditworthiness and for its overall financial condition and operational capabilities, and are therefore designed to minimize the risk of loss and delay in access to OCC’s assets and its participants’ assets. Accordingly, the Commission finds that these policies and procedures are consistent with the requirements in Rule 17Ad–22(e)(16).17 D. Consistency With Rule 17Ad– 22(e)(18) Rule 17Ad–22(e)(18) 18 requires each covered clearing agency to establish, implement, maintain and enforce written policies and procedures reasonably designed to among other things, establish objective, risk-based, and publicly disclosed criteria for participation, which permit fair and open access and require participants to have sufficient financial resources and robust operational capacity to meet obligations arising from participation in the clearing agency, and monitor compliance with such participation requirements on an ongoing basis. OCC stated that the CCRM Policy ensures that OCC has objective, risk-based, and publicly disclosed criteria for participation and requiring Clearing 15 Id. 16 17 E. Consistency With Rule 17Ad– 22(e)(19) Rule 17Ad–22(e)(19) 20 requires each covered clearing agency to establish, implement, maintain and enforce written policies and procedures reasonably designed to identify, monitor, and manage the material risks to the covered clearing agency arising from arrangements in which firms that are indirect participants in the covered clearing agency rely on the services provided by direct participants to access the covered clearing agency’s payment, clearing, or settlement facilities. OCC represented that the CCRM Policy outlines the process by which OCC identifies and monitors the material risks arising from indirect participants through tiered participation arrangements, including through the use of risk examinations of its Clearing Members. Accordingly, the Commission finds that these policies and procedures are consistent with the requirements in Rule 17Ad–22(e)(19).21 F. Consistency With Rule 17Ad– 22(e)(20) Rule 17Ad–22(e)(20) 22 requires each covered clearing agency to establish, implement, maintain and enforce written policies and procedures reasonably designed to among other things, identify, monitor, and manage risks related to any link the covered clearing agency establishes with one or more other clearing agencies or FMUs. OCC represented that the CCRM Policy outlines the standards OCC uses to evaluate FMU Counterparties prior to entering into any link arrangement (including the evaluations OCC would perform relating to rights and interests, collateral arrangements, settlement finality and netting arrangements, and financial and custody risks that may arise due to such link arrangement) and the processes by which OCC measures and monitors the risks arising from such FMU Counterparties (including its FMU Watch Level Reporting process). 19 Id. CFR 240.17Ad–22(e)(16). 20 17 17 Id. 18 17 Members to have sufficient financial resources to meet their obligations to OCC. Moreover, the CCRM Policy outlines the Watch Level Reporting process used by OCC to monitor compliance with such participation requirements on an ongoing basis. Accordingly, the Commission finds that these policies and procedures are consistent with the requirements in Rule 17Ad–22(e)(18).19 CFR 240.17Ad–22(e)(19). 21 Id. CFR 240.17Ad–22(e)(18). VerDate Sep<11>2014 17:47 Dec 18, 2017 22 17 Jkt 244001 PO 00000 CFR 240.17Ad–22(e)(20). Frm 00074 Fmt 4703 Sfmt 4703 Accordingly, the Commission finds that these policies and procedures are consistent with the requirements in Rule 17Ad–22(e)(20).23 III. Conclusion On the basis of the foregoing, the Commission finds that the proposed change is consistent with the requirements of the Act, and in particular, with the requirements of Section 17A of the Act 24 and the rules and regulations thereunder. It is therefore ordered, pursuant to Section 19(b)(2) of the Exchange Act,25 that the proposed rule change (SR– OCC–2017–009) be, and it hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.26 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–27231 Filed 12–18–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–82316; File No. SR–LCH SA–2017–012] Self-Regulatory Organizations; LCH SA; Notice of Proposed Rule Change, Security-Based Swap Submission, or Advance Notice Relating to LCH SA’s Recovery Plan December 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 November 30, 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. 23 Id. 24 In approving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 25 15 U.S.C. 78s(b)(2). 26 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. E:\FR\FM\19DEN1.SGM 19DEN1 Federal Register / Vol. 82, No. 242 / Tuesday, December 19, 2017 / Notices I. Clearing Agency’s Statement of the Terms of Substance of the Proposed Rule Change LCH SA is proposing to adopt an updated recovery plan (the ‘‘RP’’) in accordance with Rule 17Ad–22(e)(3)(ii). The text of the proposed rule change has been annexed as Exhibit 5. LCH SA has requested confidential treatment of the material submitted as Exhibit 5. II. Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, LCH SA included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. LCH SA has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of these statements. A. Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change sradovich on DSK3GMQ082PROD with NOTICES 1. Purpose On September 28, 2016, the Securities and Exchange Commission (the ‘‘Commission’’) adopted amendments to Rule 17Ad–22 3 pursuant to Section 17A of the Securities Exchange Act of 1934 (the ‘‘Act’’) 4 and the Payment, Clearing and Settlement Supervision Act of 2010 (‘‘Clearing Supervision Act’’) 5 to establish enhanced standards for the operation and governance of those clearing agencies registered with the Commission that meet the definition of a ‘‘covered clearing agency,’’ as defined by Rule 17Ad–22(a)(5) 6 (collectively, the new and amended rules are herein referred to as ‘‘CCA rules’’). LCH SA is a covered clearing agency under the CCA rules and therefore is subject to the requirements of the CCA rules, including Rule 17Ad–22(e)(3). The CCA rules require that covered clearing agencies, among other things, ‘‘establish, implement, maintain and enforce written policies and procedures reasonably designed to . . . maintain a sound risk management framework for comprehensively managing legal, credit, liquidity, operational, general business, investment, custody, and other risks that arise in or are borne by the covered clearing agency, which . . . includes plans for the recovery and orderly winddown of the covered clearing agency 3 17 CFR 240.17Ad–22. U.S.C. 78q. 5 12 U.S.C. 5461 et seq. 6 17 CFR 240.17Ad–22(a)(5). 7 17 CFR 240.17Ad–22(e)(3)(ii). (EU) No 648/2012 of 4 July 2012 on OTC derivatives, central counterparties and trade repositories 4 15 VerDate Sep<11>2014 17:47 Dec 18, 2017 necessitated by credit losses, liquidity shortfalls, losses from general business risk, or any other losses’’.7 As a central counterparty recognized under the European Market Infrastructure Regulation (‘‘EMIR’’) 8, LCH SA is also subject to prudential requirements, as well as requirements regarding its operations and oversight. As a credit institution based in the European Union, LCH SA is also subject to Directive 2014/59/EU, as supplemented, requiring institutions to draw up and maintain recovery plans setting forth options for measures to be taken by the institution to restore its financial position following a significant deterioration of its financial position. Specific guidance has been given on Recovery for CCP by CPMI IOSCO. Within the CPMI IOSCO principles for financial market infrastructures (PFMI) it is outlined that all systemically important FMIs should have a comprehensive and effective recovery plan. For this purpose it has issued the report ‘‘recovery of financial market infrastructures’’ containing guidance on recovery plans, content of a recovery plan in October 2014 and a guidance relating resilience and recovery in 2017. Furthermore, regulations are under preparation on a European level outlining the Recovery and Resolution measures for CCPs. As described in more detail below, the purpose of the RP is to maintain the continuity of critical services in times of extreme stress and to facilitate the recovery of LCH SA agency. Among other things, the RP seeks to: (i) Identify if and to what level LCH SA’s service are critical for the market and what internal or external services/systems are critical for the continuity of LCH SA’s activity; (ii) outline the scenario under which recovery of the LCH SA might be necessary; (iii) define the early warning indicators and triggers for initiating the recovery measures under the RP, including the market conditions or events that could trigger it; (iv) define the governance framework to trigger these recovery measures; (v) identify the available recovery tools to manage crisis situations and to restore business as usual; and (vi) Perform a quantitative and qualitative assessment if the recover tools meet the CPMI IOSCO criteria for recovery instruments. The RP also includes a detailed summary of the overall business and regulatory framework that LCH SA operates in, including identification of 8 Regulation Jkt 244001 PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 60247 applicable regulations, company structure, detail regarding the LCH SA business lines and geographical spread, and information regarding the interaction between LCH SA and its parent entity (the ‘‘Parent’’). The RP also contains an FMI analysis which analyses LCH SA relationship with other financial market infrastructure (e.g. settlement platforms, trade repositories, etc) and institutions used by LCH SA or its clearing members such a payment and settlement agents. The RP covers all scenarios which may potentially prevent LCH SA from providing its critical services: —The default of one or multiple Clearing Member(s) on one or several of its markets, where LCH SA has to re-establish the matched book and may have allocate any uncovered credit losses to its own capital or to surviving clearing members. —Potential and actual liquidity shortfalls as result of a clearing member or allied clearing house default. —The default of an investment counterparty of LCH SA or any other investment losses resulting from changes in the market value on the investments. —A loss resulting from an operational risk event or any other event which impacts the critical services provided by LCH SA (e.g., failure in the provision of service by a third party). —Poor business performance or loss of critical contracts with Exchanges. —Operational or financial failure of an FMI (e.g., allied clearing house/ (I)CSD/Trades Repository). 1. Identification of Critical Services and Operations With respect to the critical services that might impact the continuity of LCH SA’s operations, the proposed RP provides that an assessment has been done in accordance with guidance by the Financial Stability Board (‘‘FSB’’) on identification of critical functions and shared services. LCH SA has assessed that the clearing services LCH SA provides to participants with respect to the markets identified in the RP are deemed critical for purposes of the RP. Overall the services provided in respect of all markets are critical because: (1) The volume of the activity on certain markets may be very significant, (2) most of the business on the relevant market is cleared through LCH SA or (3) the suspension of the clearing service could impact materially the functioning of the market; the level of global market share with respect to certain products is high; and LCH SA’s service are used by significant clearing firms. Moreover, a E:\FR\FM\19DEN1.SGM 19DEN1 60248 Federal Register / Vol. 82, No. 242 / Tuesday, December 19, 2017 / Notices sradovich on DSK3GMQ082PROD with NOTICES transfer of the clearing activity to another CCP is technically and organizationally complex to perform on short notice. The RP also identifies those shared operations which LCH SA depends on to perform critical services to members, including those critical departments and services and systems within its corporate group and those provided by others. The RP identifies the main operating units within LCH SA that play a critical role in providing services as well as those enterprise systems that are critical for LCH SA’s ongoing operations. Such systems are categorized as (i) Tier 1 Enterprise Critical (which is the most important category and where a failure may have direct impact on the continued functioning of LCH SA); (ii) Tier 2 Business Critical (which is a category of systems where business may not be able to proceed as usual in the event of a failure); and (iii) Tier 3 Business Support (which are non-critical systems). In addition, the RP identifies those services provided by its affiliates (including its Parent) and third-party service providers that are essential to LCH SA’s operations as well as the agreements governing such relationships. The RP describes that LCH SA maintains comprehensive exit management plans should its Parent initiate its own recovery and winddown plan, cease to operate, or notify LCH SA of its termination of services. The RP also describes the business continuity procedures and exit management plans that LCH SA would initiate upon the failure of a critical third-party service provider. 2. Identification of Possible Stress and Recovery Scenarios The RP categorizes potential stress scenarios in two ways as a result of either: (i) Clearing member defaults and (ii) non-clearing member events. Clearing member defaults are identified as those losses that threaten LCH SA’s ability to operate as a going concern through either uncovered credit losses or liquidity shortfalls created as a result of a default by one or more members. Non-clearing member defaults are defined as losses impacting capital adequacy arising from risks, including, without limitation, general business risks, operational events, custody and investment risks, or risks on the interoperability link. The RP then identifies, prior to implementing any of the recovery strategies described therein, the day-today risk measures in place to assure provision of the critical services VerDate Sep<11>2014 17:47 Dec 18, 2017 Jkt 244001 performed where these are insufficient the recovery plan will be triggered. With respect to clearing member defaults, the LCH SA risk framework provides mitigations for uncovered credit losses due to a member default. LCH SA follows high standards to assess financial resources against member portfolios, including initial margin model covering the potential loss from any member default to a 99.7% confidence level over the applicable holding period, margin add-ons to deal with specific member portfolios risks such as concentration, liquidity risk and sovereign risk, and default fund sizing to cover simultaneous default of the 2 members having the largest stress testing losses beyond the 99.7% confidence level. Stress tests are applied by LCH SA in order to assess whether financial resources are calibrated to handle systemic risks. In addition, a reverse stress resting procedure is used to ascertain adequacy of financial resources held against member positions. The stress testing framework is reviewed on an annual basis. Further, reverse stress testing exercise is conducted at least quarterly for each default fund and is subject to review by LCH Executive Risk Committee. Risk monitoring mechanisms have been established in order to anticipate and identify any credit or market risks with respect to a clearing member, including daily monitoring of credit watch lists by LCH SA’s credit risk department. The RP covers the default of one or multiple Clearing Member(s) on one or several of its markets, where LCH SA has to re-establish the matched book and may have allocate any uncovered credit losses to its own capital or to surviving clearing members. With respect to liquidity shortfalls as a result of the clearing member default, the existing liquidity risk management framework seeks to manage liquidity risk by requiring certain minimum liquidity coverage ratio and using reserve stress testing to identify plausible scenarios where the liquidity coverage ratio falls below 100%, as well as considering the liquidity impact as a result of the default of its liquidity line provider. LCH SA would leverage on the reserve stress testing scenarios and the liquidity line provider’s default to define the liquidity recovery scenarios. In addition, the RP provides that LCH SA uses a set of early warning indicators and management actions to mitigate liquidity risk prior to implementing RP. To the extent a clearing member default has occurred, LCH SA would perform increased risk monitoring, including PO 00000 Frm 00076 Fmt 4703 Sfmt 4703 preparation of liquidity risk reports that would be produced several times a day. The RP covers the potential and actual liquidity shortfalls as result of a clearing member or allied clearing house default. For operational risks, the RP provides that on a quarterly basis, control assessments, incident and audit recommendations are reviewed and adjusted as appropriate. On a yearly basis, a risk and control self-assessment is performed whereby all risks are reassessed. The operational risk department performs second line challenge on all these activities. In addition, all ‘‘major’’ or ‘‘high’’ incidents are processed through a detailed incident review to identify actions to further improve the control environment. LCH SA also performs a business impact analysis where it identifies all critical systems and departments and has in place a global business continuity strategy which outlines the strategy to maintain critical services in case of a disaster. The RP further identifies events, including cyber-attacks, failure of a critical service provider, failure of data providers and exchanges, failure of LCH SA’s Parent, and reputational events as potential operational risks that could threaten its continued functioning. The RP covers both a loss resulting from an operational risk event or any other event which impacts the critical services provided by LCH SA (e.g., failure in the provision of service by a third party). Business risk is managed by the relevant individual business lines and requires frequent monitoring of results against budget and financial plans, with a second line challenge performed by the risk and finance departments to verify if sufficient capital buffers are available for applicable business risks. In addition, LCH SA conducts a yearly review of business risk scenarios to define potential loss scenarios under foreseeable conditions and the LCH SA finance department monitors key metrics, including revenues and quarterly financial information. Investment risk and second line monitoring is also conducted with respect to interest rate risk, aggregate credit risk exposure, daily mark-tomarket limits, and internal credit scores for investment counterparties. The RP also considers that LCH SA is connected to a broad range of financial market infrastructures, including central securities depositories, settlement platforms and interoperating central counterparties and identifies the types of operational or financial failures that E:\FR\FM\19DEN1.SGM 19DEN1 Federal Register / Vol. 82, No. 242 / Tuesday, December 19, 2017 / Notices sradovich on DSK3GMQ082PROD with NOTICES could restrict LCH SA’s ability to operate. Finally, the RP identifies a series of scenarios which, taken together, could also impact the continued functioning of critical services. 3. Triggers for RP The RP includes a detailed list of events which if they were to occur would trigger the implementation of a specific action identified in the RP. The RP provides that a clearing member default will be identified through credit risk monitoring and review of external information indicating a default. Each LCH SA business line then applies its own default management process under which a default management group identifies and manages the phases of the default management process and the application of the default waterfall. The possible triggers for the RP include: (i) A clearing member default, in which case the default procedures will be initiated to reestablish the matched book; (ii) several default events may lead to more than one replenishment of Skin in the Game (iii) mutualized default fund contributions per specific default have been consumed, in which case unfunded resources will be used to keep LCH SA appropriately funded. Each LCH SA business lines maintain its own default management process and waterfall, but, in general, the RP describes the tools used in the event of a clearing member default. The default management process is used to reestablish the matched book of LCH SA and return back to business as usual and therefore considered as a recovery tool. The relevant governance for the management of a default is followed as described in the paragraph 5. When covering the relevant credit losses related to a default event. First, LCH SA looks to the defaulting clearing member’s margin. These amounts are already held by LCH SA and are available to manage the default of a clearing member and, as such, are not considered to be a trigger of the RP. Second, LCH SA looks to the defaulting clearing member’s default fund contribution, which may be allocated to the defaulting clearing member’s shortfalls. Again, this action is within the control of LCH SA and does not impact the capital adequacy of LCH SA, so is also not considered a trigger for the RP. Third, in line with requirements under EMIR, LCH SA is required to hold capital equivalent to 25 percent of LCH SA’s minimum net capital requirement against which default losses can be applied against liquid available capital. In addition, excess capital is held to VerDate Sep<11>2014 17:47 Dec 18, 2017 Jkt 244001 replenish such amount within the relevant EMIR deadline. Where multiple defaults occur over a longer time period and lead to multiple replenishments of Skin in the Game, this may lead to start up of the recovery plan and application of capital conservation measures. Fourth, should losses arising from a clearing member default be consumed by the defaulter’s margin and default fund contribution and subsequently LCH SA’s contribution from capital, LCH SA may look to non-defaulting member default fund contributions. Those amounts are pre-funded by members and held and controlled by LCH SA for the purposes of managing a default and, thus, the utilization of those amounts is not considered an application of the RP. However, LCH SA has the right to trigger an assessment of the defaults as to reestablish the fund to its original size, and such an assessment is considered to be a recovery measure under the RP. Finally, when it is no longer possible for LCH SA to make assessments and all pre-funded default fund contributions have been used, recovery measures under the RP, as described below, will be implemented. With respect to liquidity shortfall triggers, LCH SA runs a daily liquidity assessment and monitors key liquidity drivers. In the event that these fall below a specific level, the RP will be triggered. In addition, the occurrence of a clearing member default or the failure of a third-party providing settlement and payment services to clearing member may also result in increased monitoring, and in the event that LCH SA does not have sufficient liquid resources to meet liquidity needs, the RP would be triggered. With respect to non-clearing member default events, the RP identifies those events with more particularity and identifies the specific triggers for the RP with respect to such events. For investment losses, which are defined as losses related to the default of an investment counterparty or losses incurred as a result of extreme market conditions, the RP is triggered if losses are greater than the maximum regulatory capital allocated to this activity. For operational risk events, the RP is triggered upon any operational losses that consume the regulatory capital LCH SA holds against the relevant risks; failure of a third party which impacts the provision of LCH SA’s services; and reputational events impacting LCH SA’s reputation with clearing members and partners. With respect to business risks, the RP is triggered upon a loss that consumes the regulatory capital LCH SA holds against the relevant risks. The RP may also be PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 60249 triggered upon the failure of other financial market infrastructures. 4. Identification and Assessment of Recovery Tools The RP identifies the various recovery tools that may be applied by LCH SA upon the triggering of the RP, using again the same distinction between clearing member default events and non-clearing member events. For clearing member default scenarios, the existing stages of the LCH SA default management process have been used as the framework for identifying and confirming the appropriate tools to use in the event of a clearing member default. The RP describes that the default management process in detail and summarizes the actions to be taken at each phase, including, as mentioned above, (i) reestablishing the matched book, (ii) default fund assessments, (iii) service continuity charges, and (iv) voluntary payments. To the extent that the default fund and assessments cannot manage the losses accumulated from the clearing member default and any service continuity or voluntary service continuity contributions received are not sufficient to cover the relevant losses, the service closure phase of the default management process is triggered and all outstanding contracts will be closed out as of the clearing day following such determination and all relevant losses are allocated to the clearing members. If the RP is triggered as a result of a liquidity shortfall, the RP provides that LCH SA may use its central bank credit line to deposited securities received on behalf of defaulting clearing member(s). Other potential tools to manage liquidity stress situation are limits with respect to illiquid collateral or, if necessary apply increased haircuts on certain types of collateral to incentivize the use of more liquid collateral as well or apply specific liquidity margins. The measures should assure that LCH SA has sufficient liquid resources at all times. As a last resort, under its rulebook, LCH SA could defer funding for the settlement platform for a limited period of time. As to non-clearing member events, the tool that is used under the RP will depend on the nature of the event, but for most investment, business, and operational risks, LCH SA has its capital surplus that it can allocate losses against. Further, LCH SA can put in place several measures for capital conservation and LCH SA also maintains insurance coverage for specific operational risk events. As a last resort, LCH SA may also initiate a E:\FR\FM\19DEN1.SGM 19DEN1 60250 Federal Register / Vol. 82, No. 242 / Tuesday, December 19, 2017 / Notices sradovich on DSK3GMQ082PROD with NOTICES capital raising strategy in order to obtain an injection of capital to replenish any consumed capital. If an event resulted in a major disruption of its activities, LCH SA would initiate its business continuity strategy, which establishes an enterprise wide RP and response proportionate to the event which aims to minimize the impact of a major disruption on LCH SA’s critical business and resources. For any disruption or loss of key third-party service provider, LCH SA would be able to exercise several contractual rights and maintains exit plans which are intended to safeguard the continuity of services. LCH SA also maintains c back up procedures and protocols that would be initiated if there is an impact on critical services of FMIs, for example its ability to collect margin within T2 under an emergency platform. Finally, LCH SA maintains a crisis communication plan which outlines the procedure for communicating with clearing members and partners in the event of a disruption. With respect to each recovery tool identified, the RP also seeks to assess that each tool possesses the following characteristics: Comprehensive; effective, including as to reliability, timeliness; transparent, provides appropriate incentives, and results in a minimum negative impact. To confirm that each recovery tool does, in fact, have these characteristics, the RP considers as to each: The barriers or constraints within the tool itself; the steps and time to implement (if not already available as a tool); the likely effectiveness of the tool; any risk of execution; the potential impacts on participants and markets generally; the sequencing of the use of the tools where multiple tools may be required; and the legal basis of the tool. The RP also includes a qualitative and quantitative assessment to provide an indication of the likelihood and severity of a potential recovery situation and whether the tools included in the RP are adequate. 5. Governance Requirements The creation of the RP and its approval is subject to a number of layers of governance approval. At a high level, the LCH SA Management Committee is responsible for the preparation of the RP and implementation of the monitoring and the recovery tools set forth in the RP. Before submission to the LCH SA Risk Committee, the RP is reviewed and validated by the Executive Risk Committee of LCH Group. The LCH SA Risk committee, which includes independent directors, then reviews, challenges (if needed), and recommends the RP for approval by the LCH SA VerDate Sep<11>2014 17:47 Dec 18, 2017 Jkt 244001 board. Final approval of the RP rests with the LCH SA Board. At a more granular level, the RP identifies the groups and individuals within LCH SA that are responsible for the various aspects of the RP. A clearing member default will be managed in accordance with the relevant procedures. The Default Management Group (‘‘DMG’’) is responsible for the management of the default while all critical decisions are escalated and submitted to the LCH SA Default Crisis Management Team (‘‘DCMT’’). All decision which may lead to the triggering of recovery measures are subject to discussion in the DCMT and approval of the LCH SA CEO. With respect to non-clearing member events, the management of those events will depend on the nature of the event. For example, investment losses and liquidity shortfalls are managed from a first line of defense, which attempts to control risks within the risk appetite parameters set by the Board, and then are escalated as appropriate. Operational risks are managed in accordance with the operational risk policy approved by the Board and reporting and second line challenges are performed by the operational risk department. Business risk is managed by individual business lines and requires frequent monitoring of results against budget and financial plans, with a second line challenge performed by the risk and finance departments to verify if sufficient capital buffers are available for the applicable business risks. Upon the occurrence of a clearing member default, the recovery measures that will apply are clearly set forth in LCH SA’s rulebook and LCH SA’s CEO has the authority to trigger the different stages in the waterfall process, but will consult with DCMT and regulators prior to taking any action. In addition, the RP provides that the LCH SA will also activate an emergency board meeting for approval (if reasonably possible). Upon receipt of information relevant to a scenario causing non-default losses, the LCH SA management committee will consider whether a recommendation to formally invoke the RP should be made to the LCH SA Board. Upon receipt of a recommendation for action, the LCH SA Board will consider the information presented to determine if the RP should be formally invoked. 6. Plan Testing and Maintenance The RP requires that LCH SA conduct testing and review of member default rules and associated procedures through the running of periodic ‘‘fire drills’’ which simulate member default PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 scenarios. According to the RP, the fire drills are intended to simulate all aspects of a member default, including the auctioning of the defaulting members portfolio to non-defaulting members (where appropriate) and involves the participation of members and relevant functions within the LCH SA organization. Further, because one of the main scenarios contemplated under the RP is a clearing member default, the testing of this element (i.e. the tools to recover from uncovered credit losses or liquidity shortfalls arising from a member default) will be incorporated into each relevant fire drill cycle. As noted in the RP, LCH SA performs an annual multi-service fire drill and service specific fire drills are performed at least annually and testing for nondefault events are incorporated into the fire drill regime as well. Should either the periodic testing or other change within LCH SA result in the need to amend the RP, the RP will be revised in accordance with the governance requirements identified above. 2. Statutory Basis LCH SA believes that the proposed rule change is consistent with the requirements of Section 17A of the Act and the regulations thereunder, including the standards under Rule 17Ad–22.9 Section 17A(b)(3)(F) of the Act 10 requires, among other things, that the rules of a clearing agency be designed to promote the prompt and accurate clearance and settlement of securities transactions to assure 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. LCH SA believes that the RP will permit it to initiate recovery upon the occurrence of certain trigger events to maintain continuity of critical services or orderly wind down in accordance with the applicable requirements of Rule 17Ad–22 11 and LCH SA’s rules. The RP is designed to formalize and set out the risk framework and measures that LCH SA will use to ensure its stability and recovery in the event of a crisis in order to be able to maintain its critical business processes and operations. Specifically, the RP would describe the LCH SA risk framework and process applicable to identify, measure, monitor and manage the risks faced by LCH SA in the provision of clearing, settlement and risk management services when a crisis 9 17 CFR 240.17Ad–22. U.S.C. 78q–1(b)(3)(F). 11 17 CFR 240.17Ad–22. 10 15 E:\FR\FM\19DEN1.SGM 19DEN1 sradovich on DSK3GMQ082PROD with NOTICES Federal Register / Vol. 82, No. 242 / Tuesday, December 19, 2017 / Notices event occurs. The RP would serve as a means of addressing, credit risk, market risk, general business risk, operational risk, and other risks that may otherwise threaten the viability of LCH SA. The RP would also support the stability of LCH SA as a clearing house that is part of the broader financial markets and seeks to promote the protection of market participants from the risk of default by a clearing member of LCH SA or an unforeseen operational or business event that impacts LCH SA’s continued functioning. In that regard, LCH SA believes that the RP supports the public interest, in line with Section 17A(b)(3)(F) 12 of the Act. The RP would also be consistent with the specific relevant requirements of Rule 17Ad–22, including under 17Ad– 22(e)(2) and (3).13 Rule 17Ad–22(e)(2) 14 provides that a covered clearing agency shall have governance arrangements that are clear and transparent and clearly prioritize the safety and efficiency of the covered clearing agency, to support the public interest requirements in Section 17A of the Act applicable to clearing agencies, and the objectives of owners and participants. LCH SA believes that the RP is consistent with these requirements. The RP includes extensive governance requirements that clearly identify the lines of responsibility with respect to the RP. As described above, at a high level, the LCH SA Management Committee is responsible for the preparation of the RP and implementation of the monitoring and the recovery tools set forth in the RP. The LCH SA Risk committee, which includes clearing member representatives, then reviews, challenges (if needed), and recommends the RP for approval by the LCH SA board. Final approval of the RP rests with the LCH SA Board, which includes, among other categories, nonexecutive Chair, independent directors and user directors. At a more granular level, the RP identifies the groups and individuals within LCH SA that are responsible for the various aspects of the RP. Therefore, LCH SA believes that the RP contains governance arrangements that are clear and transparent and clearly prioritize the safety and efficiency of the covered clearing agency, to support the public interest requirements and the objectives of owners and participants, and is, therefore, consistent with the requirements of Rule 17Ad–22(e)(2). U.S.C. 78q–1(b)(3)(F). CFR 240.17Ad–22(e)(2) and (3). 14 17 CFR 240.17Ad–22(e)(2). Rule 17Ad–22(e)(3)15 requires that a covered clearing agency maintain a sound risk management framework for comprehensively managing legal, credit, liquidity, operational, general business, investment, custody, and other risks that arise in or are borne by the covered clearing agency, which must include plans for the recovery and orderly winddown of the covered clearing agency necessitated by credit losses, liquidity shortfalls, losses from general business risk, or any other losses. The RP is designed to maintain the continuity of critical services in times of extreme stress and to facilitate the recovery of LCH SA in the event of extreme (loss) scenarios, as part of LCH SA’s comprehensive risk management framework. As described above, the RP seeks to identify those services which could impact the continuity of LCH SA’s operations, implement early warning indicators to identify potential recovery scenarios and define the triggers for initiating the RP, and clearly identify the recovery tools available under the RP. Accordingly, LCH SA believes the RP is consistent with Rule 17Ad–22(e)(3).16 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.17 LCH SA does not believe the proposed rule change would impact or impose any burden on competition. The proposed rule change would establish and maintain LCH SA’s RP in accordance with the CCA rules. The RP would not affect clearing member’s access to services offered by LCH SA or impose any direct burden on clearing members. To the contrary, the RP seeks to identify the key risks and to establish appropriate recovery measures to ensure LCH SA’s ability to operate in the event of an extreme loss. Accordingly, the proposed rule change would not unfairly inhibit market participants’ access to LCH SA’s services or disadvantage or favor any particular user in relationship to another user. 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. 12 15 15 17 13 17 16 17 VerDate Sep<11>2014 17:47 Dec 18, 2017 Jkt 244001 CFR 240.17Ad–22(e)(3). CFR 240.17Ad–22(e)(3). 17 15 U.S.C. 78q–1(b)(3)(I). PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 60251 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–2017–012 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–2017–012. 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 website (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 E:\FR\FM\19DEN1.SGM 19DEN1 60252 Federal Register / Vol. 82, No. 242 / Tuesday, December 19, 2017 / Notices those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of LCH SA and on LCH SA’s website at https://www.lch.com/assetclasses/cdsclear. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–LCH SA–2017–012 and should be submitted on or before January 9, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.18 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–27235 Filed 12–18–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION 2:00 p.m. on Thursday, December 21, 2017. PLACE: Closed Commission Hearing Room 10800. STATUS: This meeting will be closed to the public. MATTERS TO BE CONSIDERED: Commissioners, Counsel to the Commissioners, the Secretary to the Commission, and recording secretaries will attend the closed meeting. Certain staff members who have an interest in the matters also may be present. The General Counsel of the Commission, or his designee, has certified that, in his opinion, one or more of the exemptions set forth in 5 U.S.C. 552b(c)(3), (5), (6), (7), (8), 9(B) and (10) and 17 CFR 200.402(a)(3), (a)(5), (a)(6), (a)(7), (a)(8), (a)(9)(ii) and (a)(10), permit consideration of the scheduled matters at the closed meeting. Commissioner Stein, as duty officer, voted to consider the items listed for the closed meeting in closed session. The subject matters of the closed meeting will be: sradovich on DSK3GMQ082PROD with NOTICES 18 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 17:47 Dec 18, 2017 Jkt 244001 Dated: December 14, 2017. Brent J. Fields, Secretary. [FR Doc. 2017–27359 Filed 12–15–17; 11:15 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–82311; File No. SR–OCC– 2017–008] Self-Regulatory Organizations; The Options Clearing Corporation; Order Approving Proposed Rule Change Related to The Options Clearing Corporation’s Collateral Risk Management Policy December 13, 2017. Sunshine Act Meetings TIME AND DATE: Institution and settlement of injunctive actions; Institution and settlement of administrative proceedings; Resolution of litigation claims; and Other matters relating to enforcement proceedings. At times, changes in Commission priorities require alterations in the scheduling of meeting items. CONTACT PERSON FOR MORE INFORMATION: For further information and to ascertain what, if any, matters have been added, deleted or postponed; please contact Brent J. Fields from the Office of the Secretary at (202) 551–5400. I. Introduction On October 27, 2017, the Options Clearing Corporation (‘‘OCC’’) 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–OCC–2017–008) to formalize and update OCC’s Collateral Risk Management Policy. The proposed rule change was published for comment in the Federal Register on November 9, 2017.3 The Commission received one comment letter regarding the proposed change.4 For the reasons discussed below, the Commission is approving the proposed rule change. II. Description of the Proposed Rule Change This proposed rule change would formalize and update OCC’s Collateral 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 Securities Exchange Act Release No. 82009 (Nov. 3, 2017), 82 FR 52079 (Nov. 9, 2017) (SR– OCC–2017–008) (‘‘Notice’’). 4 Letter from Michael Kitlas, dated November 3, 2017. See comments on the proposed rule change (SR–OCC–2017–008), https://www.sec.gov/ comments/sr-occ-2017-008/occ2017008.htm. 2 17 PO 00000 Frm 00080 Fmt 4703 Sfmt 4703 Risk Management Policy (‘‘CRM Policy’’). The CRM Policy describes the categories of risk that are considered by OCC in determining which asset classes should be acceptable forms of collateral as margin assets and Clearing Fund contributions. OCC’s assessment of an asset class generally includes an evaluation of credit risk, liquidity risk, and market risk.5 With respect to credit risk, the CRM Policy requires OCC staff to evaluate the creditworthiness of counterparties, including custodial agents and settlement banks and to monitor the health of such counterparties on an ongoing basis.6 Regarding liquidity risk, OCC gives no value to a participant for its own (or its affiliate’s) debt or equity securities, and limits the amount of a particular asset type that a participant may pledge under the CRM Policy.7 With respect to market risks, the CRM Policy provides that eligible asset classes are accepted after consideration of their liquidity, price transparency, price volatility, offset potential with contracts cleared by OCC, modeling implications and projected inventories.8 The CRM Policy describes OCC’s approach to valuing collateral and setting and applying haircuts. OCC’s pricing information, as described in the CRM Policy, feeds into OCC’s processes for establishing haircuts, daily mark-tomarket valuation of collateral, and intraday valuation of collateral. Given the importance of pricing data to inform these processes, OCC maintains redundant information feeds from multiple sources to help ensure accuracy and quality.9 The CRM Policy also summarizes OCC’s two approaches for valuing collateral: Collateral in Margins (‘‘CiM’’) and haircuts.10 Under the CiM approach, the current market value of margin assets is included as a positive asset value in the calculation of a portfolio’s net asset value within OCC’s System for Theoretical Analysis and Numerical Simulations (‘‘STANS’’). OCC then offsets this positive asset value based on, among other things, the expected shortfall and stress test charges associated with an account, resulting in a net excess or net deficit.11 For collateral that is not managed using the CiM process, the CRM Policy provides that OCC subjects such collateral to percentage haircuts established at the 5 Notice, 82 FR at 52080. 6 Id. 7 Id. 8 Id. 9 Notice, 82 FR at 52080–81. 82 FR at 52081. 11 Notice, 82 FR at 52081, note 23. 10 Notice, E:\FR\FM\19DEN1.SGM 19DEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 82, Number 242 (Tuesday, December 19, 2017)]
[Notices]
[Pages 60246-60252]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-27235]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82316; File No. SR-LCH SA-2017-012]


Self-Regulatory Organizations; LCH SA; Notice of Proposed Rule 
Change, Security-Based Swap Submission, or Advance Notice Relating to 
LCH SA's Recovery Plan

December 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 November 30, 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.

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[[Page 60247]]

I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    LCH SA is proposing to adopt an updated recovery plan (the ``RP'') 
in accordance with Rule 17Ad-22(e)(3)(ii). The text of the proposed 
rule change has been annexed as Exhibit 5. LCH SA has requested 
confidential treatment of the material submitted as Exhibit 5.

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

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

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

1. Purpose
    On September 28, 2016, the Securities and Exchange Commission (the 
``Commission'') adopted amendments to Rule 17Ad-22 \3\ pursuant to 
Section 17A of the Securities Exchange Act of 1934 (the ``Act'') \4\ 
and the Payment, Clearing and Settlement Supervision Act of 2010 
(``Clearing Supervision Act'') \5\ to establish enhanced standards for 
the operation and governance of those clearing agencies registered with 
the Commission that meet the definition of a ``covered clearing 
agency,'' as defined by Rule 17Ad-22(a)(5) \6\ (collectively, the new 
and amended rules are herein referred to as ``CCA rules'').
---------------------------------------------------------------------------

    \3\ 17 CFR 240.17Ad-22.
    \4\ 15 U.S.C. 78q.
    \5\ 12 U.S.C. 5461 et seq.
    \6\ 17 CFR 240.17Ad-22(a)(5).
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    LCH SA is a covered clearing agency under the CCA rules and 
therefore is subject to the requirements of the CCA rules, including 
Rule 17Ad-22(e)(3). The CCA rules require that covered clearing 
agencies, among other things, ``establish, implement, maintain and 
enforce written policies and procedures reasonably designed to . . . 
maintain a sound risk management framework for comprehensively managing 
legal, credit, liquidity, operational, general business, investment, 
custody, and other risks that arise in or are borne by the covered 
clearing agency, which . . . includes plans for the recovery and 
orderly wind-down of the covered clearing agency necessitated by credit 
losses, liquidity shortfalls, losses from general business risk, or any 
other losses''.\7\ As a central counterparty recognized under the 
European Market Infrastructure Regulation (``EMIR'') \8\, LCH SA is 
also subject to prudential requirements, as well as requirements 
regarding its operations and oversight. As a credit institution based 
in the European Union, LCH SA is also subject to Directive 2014/59/EU, 
as supplemented, requiring institutions to draw up and maintain 
recovery plans setting forth options for measures to be taken by the 
institution to restore its financial position following a significant 
deterioration of its financial position.
---------------------------------------------------------------------------

    \7\ 17 CFR 240.17Ad-22(e)(3)(ii).
    \8\ Regulation (EU) No 648/2012 of 4 July 2012 on OTC 
derivatives, central counterparties and trade repositories
---------------------------------------------------------------------------

    Specific guidance has been given on Recovery for CCP by CPMI IOSCO. 
Within the CPMI IOSCO principles for financial market infrastructures 
(PFMI) it is outlined that all systemically important FMIs should have 
a comprehensive and effective recovery plan. For this purpose it has 
issued the report ``recovery of financial market infrastructures'' 
containing guidance on recovery plans, content of a recovery plan in 
October 2014 and a guidance relating resilience and recovery in 2017.
    Furthermore, regulations are under preparation on a European level 
outlining the Recovery and Resolution measures for CCPs.
    As described in more detail below, the purpose of the RP is to 
maintain the continuity of critical services in times of extreme stress 
and to facilitate the recovery of LCH SA agency. Among other things, 
the RP seeks to: (i) Identify if and to what level LCH SA's service are 
critical for the market and what internal or external services/systems 
are critical for the continuity of LCH SA's activity; (ii) outline the 
scenario under which recovery of the LCH SA might be necessary; (iii) 
define the early warning indicators and triggers for initiating the 
recovery measures under the RP, including the market conditions or 
events that could trigger it; (iv) define the governance framework to 
trigger these recovery measures; (v) identify the available recovery 
tools to manage crisis situations and to restore business as usual; and 
(vi) Perform a quantitative and qualitative assessment if the recover 
tools meet the CPMI IOSCO criteria for recovery instruments.
    The RP also includes a detailed summary of the overall business and 
regulatory framework that LCH SA operates in, including identification 
of applicable regulations, company structure, detail regarding the LCH 
SA business lines and geographical spread, and information regarding 
the interaction between LCH SA and its parent entity (the ``Parent'').
    The RP also contains an FMI analysis which analyses LCH SA 
relationship with other financial market infrastructure (e.g. 
settlement platforms, trade repositories, etc) and institutions used by 
LCH SA or its clearing members such a payment and settlement agents.
    The RP covers all scenarios which may potentially prevent LCH SA 
from providing its critical services:

--The default of one or multiple Clearing Member(s) on one or several 
of its markets, where LCH SA has to re-establish the matched book and 
may have allocate any uncovered credit losses to its own capital or to 
surviving clearing members.
--Potential and actual liquidity shortfalls as result of a clearing 
member or allied clearing house default.
--The default of an investment counterparty of LCH SA or any other 
investment losses resulting from changes in the market value on the 
investments.
--A loss resulting from an operational risk event or any other event 
which impacts the critical services provided by LCH SA (e.g., failure 
in the provision of service by a third party).
--Poor business performance or loss of critical contracts with 
Exchanges.
--Operational or financial failure of an FMI (e.g., allied clearing 
house/(I)CSD/Trades Repository).
1. Identification of Critical Services and Operations
    With respect to the critical services that might impact the 
continuity of LCH SA's operations, the proposed RP provides that an 
assessment has been done in accordance with guidance by the Financial 
Stability Board (``FSB'') on identification of critical functions and 
shared services. LCH SA has assessed that the clearing services LCH SA 
provides to participants with respect to the markets identified in the 
RP are deemed critical for purposes of the RP. Overall the services 
provided in respect of all markets are critical because: (1) The volume 
of the activity on certain markets may be very significant, (2) most of 
the business on the relevant market is cleared through LCH SA or (3) 
the suspension of the clearing service could impact materially the 
functioning of the market; the level of global market share with 
respect to certain products is high; and LCH SA's service are used by 
significant clearing firms. Moreover, a

[[Page 60248]]

transfer of the clearing activity to another CCP is technically and 
organizationally complex to perform on short notice.
    The RP also identifies those shared operations which LCH SA depends 
on to perform critical services to members, including those critical 
departments and services and systems within its corporate group and 
those provided by others. The RP identifies the main operating units 
within LCH SA that play a critical role in providing services as well 
as those enterprise systems that are critical for LCH SA's ongoing 
operations. Such systems are categorized as (i) Tier 1 Enterprise 
Critical (which is the most important category and where a failure may 
have direct impact on the continued functioning of LCH SA); (ii) Tier 2 
Business Critical (which is a category of systems where business may 
not be able to proceed as usual in the event of a failure); and (iii) 
Tier 3 Business Support (which are non-critical systems). In addition, 
the RP identifies those services provided by its affiliates (including 
its Parent) and third-party service providers that are essential to LCH 
SA's operations as well as the agreements governing such relationships.
    The RP describes that LCH SA maintains comprehensive exit 
management plans should its Parent initiate its own recovery and wind-
down plan, cease to operate, or notify LCH SA of its termination of 
services. The RP also describes the business continuity procedures and 
exit management plans that LCH SA would initiate upon the failure of a 
critical third-party service provider.
2. Identification of Possible Stress and Recovery Scenarios
    The RP categorizes potential stress scenarios in two ways as a 
result of either: (i) Clearing member defaults and (ii) non-clearing 
member events. Clearing member defaults are identified as those losses 
that threaten LCH SA's ability to operate as a going concern through 
either uncovered credit losses or liquidity shortfalls created as a 
result of a default by one or more members. Non-clearing member 
defaults are defined as losses impacting capital adequacy arising from 
risks, including, without limitation, general business risks, 
operational events, custody and investment risks, or risks on the 
interoperability link.
    The RP then identifies, prior to implementing any of the recovery 
strategies described therein, the day-to-day risk measures in place to 
assure provision of the critical services performed where these are 
insufficient the recovery plan will be triggered.
    With respect to clearing member defaults, the LCH SA risk framework 
provides mitigations for uncovered credit losses due to a member 
default. LCH SA follows high standards to assess financial resources 
against member portfolios, including initial margin model covering the 
potential loss from any member default to a 99.7% confidence level over 
the applicable holding period, margin add-ons to deal with specific 
member portfolios risks such as concentration, liquidity risk and 
sovereign risk, and default fund sizing to cover simultaneous default 
of the 2 members having the largest stress testing losses beyond the 
99.7% confidence level. Stress tests are applied by LCH SA in order to 
assess whether financial resources are calibrated to handle systemic 
risks. In addition, a reverse stress resting procedure is used to 
ascertain adequacy of financial resources held against member 
positions. The stress testing framework is reviewed on an annual basis.
    Further, reverse stress testing exercise is conducted at least 
quarterly for each default fund and is subject to review by LCH 
Executive Risk Committee. Risk monitoring mechanisms have been 
established in order to anticipate and identify any credit or market 
risks with respect to a clearing member, including daily monitoring of 
credit watch lists by LCH SA's credit risk department.
    The RP covers the default of one or multiple Clearing Member(s) on 
one or several of its markets, where LCH SA has to re-establish the 
matched book and may have allocate any uncovered credit losses to its 
own capital or to surviving clearing members.
    With respect to liquidity shortfalls as a result of the clearing 
member default, the existing liquidity risk management framework seeks 
to manage liquidity risk by requiring certain minimum liquidity 
coverage ratio and using reserve stress testing to identify plausible 
scenarios where the liquidity coverage ratio falls below 100%, as well 
as considering the liquidity impact as a result of the default of its 
liquidity line provider.
    LCH SA would leverage on the reserve stress testing scenarios and 
the liquidity line provider's default to define the liquidity recovery 
scenarios.
    In addition, the RP provides that LCH SA uses a set of early 
warning indicators and management actions to mitigate liquidity risk 
prior to implementing RP. To the extent a clearing member default has 
occurred, LCH SA would perform increased risk monitoring, including 
preparation of liquidity risk reports that would be produced several 
times a day.
    The RP covers the potential and actual liquidity shortfalls as 
result of a clearing member or allied clearing house default.
    For operational risks, the RP provides that on a quarterly basis, 
control assessments, incident and audit recommendations are reviewed 
and adjusted as appropriate. On a yearly basis, a risk and control 
self-assessment is performed whereby all risks are reassessed. The 
operational risk department performs second line challenge on all these 
activities. In addition, all ``major'' or ``high'' incidents are 
processed through a detailed incident review to identify actions to 
further improve the control environment.
    LCH SA also performs a business impact analysis where it identifies 
all critical systems and departments and has in place a global business 
continuity strategy which outlines the strategy to maintain critical 
services in case of a disaster. The RP further identifies events, 
including cyber-attacks, failure of a critical service provider, 
failure of data providers and exchanges, failure of LCH SA's Parent, 
and reputational events as potential operational risks that could 
threaten its continued functioning.
    The RP covers both a loss resulting from an operational risk event 
or any other event which impacts the critical services provided by LCH 
SA (e.g., failure in the provision of service by a third party).
    Business risk is managed by the relevant individual business lines 
and requires frequent monitoring of results against budget and 
financial plans, with a second line challenge performed by the risk and 
finance departments to verify if sufficient capital buffers are 
available for applicable business risks. In addition, LCH SA conducts a 
yearly review of business risk scenarios to define potential loss 
scenarios under foreseeable conditions and the LCH SA finance 
department monitors key metrics, including revenues and quarterly 
financial information. Investment risk and second line monitoring is 
also conducted with respect to interest rate risk, aggregate credit 
risk exposure, daily mark-to-market limits, and internal credit scores 
for investment counterparties.
    The RP also considers that LCH SA is connected to a broad range of 
financial market infrastructures, including central securities 
depositories, settlement platforms and interoperating central 
counterparties and identifies the types of operational or financial 
failures that

[[Page 60249]]

could restrict LCH SA's ability to operate.
    Finally, the RP identifies a series of scenarios which, taken 
together, could also impact the continued functioning of critical 
services.
3. Triggers for RP
    The RP includes a detailed list of events which if they were to 
occur would trigger the implementation of a specific action identified 
in the RP.
    The RP provides that a clearing member default will be identified 
through credit risk monitoring and review of external information 
indicating a default. Each LCH SA business line then applies its own 
default management process under which a default management group 
identifies and manages the phases of the default management process and 
the application of the default waterfall. The possible triggers for the 
RP include: (i) A clearing member default, in which case the default 
procedures will be initiated to reestablish the matched book; (ii) 
several default events may lead to more than one replenishment of Skin 
in the Game (iii) mutualized default fund contributions per specific 
default have been consumed, in which case unfunded resources will be 
used to keep LCH SA appropriately funded.
    Each LCH SA business lines maintain its own default management 
process and waterfall, but, in general, the RP describes the tools used 
in the event of a clearing member default. The default management 
process is used to re-establish the matched book of LCH SA and return 
back to business as usual and therefore considered as a recovery tool. 
The relevant governance for the management of a default is followed as 
described in the paragraph 5.
    When covering the relevant credit losses related to a default 
event. First, LCH SA looks to the defaulting clearing member's margin. 
These amounts are already held by LCH SA and are available to manage 
the default of a clearing member and, as such, are not considered to be 
a trigger of the RP. Second, LCH SA looks to the defaulting clearing 
member's default fund contribution, which may be allocated to the 
defaulting clearing member's shortfalls. Again, this action is within 
the control of LCH SA and does not impact the capital adequacy of LCH 
SA, so is also not considered a trigger for the RP. Third, in line with 
requirements under EMIR, LCH SA is required to hold capital equivalent 
to 25 percent of LCH SA's minimum net capital requirement against which 
default losses can be applied against liquid available capital. In 
addition, excess capital is held to replenish such amount within the 
relevant EMIR deadline. Where multiple defaults occur over a longer 
time period and lead to multiple replenishments of Skin in the Game, 
this may lead to start up of the recovery plan and application of 
capital conservation measures. Fourth, should losses arising from a 
clearing member default be consumed by the defaulter's margin and 
default fund contribution and subsequently LCH SA's contribution from 
capital, LCH SA may look to non-defaulting member default fund 
contributions. Those amounts are pre-funded by members and held and 
controlled by LCH SA for the purposes of managing a default and, thus, 
the utilization of those amounts is not considered an application of 
the RP. However, LCH SA has the right to trigger an assessment of the 
defaults as to reestablish the fund to its original size, and such an 
assessment is considered to be a recovery measure under the RP. 
Finally, when it is no longer possible for LCH SA to make assessments 
and all pre-funded default fund contributions have been used, recovery 
measures under the RP, as described below, will be implemented.
    With respect to liquidity shortfall triggers, LCH SA runs a daily 
liquidity assessment and monitors key liquidity drivers. In the event 
that these fall below a specific level, the RP will be triggered. In 
addition, the occurrence of a clearing member default or the failure of 
a third-party providing settlement and payment services to clearing 
member may also result in increased monitoring, and in the event that 
LCH SA does not have sufficient liquid resources to meet liquidity 
needs, the RP would be triggered.
    With respect to non-clearing member default events, the RP 
identifies those events with more particularity and identifies the 
specific triggers for the RP with respect to such events. For 
investment losses, which are defined as losses related to the default 
of an investment counterparty or losses incurred as a result of extreme 
market conditions, the RP is triggered if losses are greater than the 
maximum regulatory capital allocated to this activity. For operational 
risk events, the RP is triggered upon any operational losses that 
consume the regulatory capital LCH SA holds against the relevant risks; 
failure of a third party which impacts the provision of LCH SA's 
services; and reputational events impacting LCH SA's reputation with 
clearing members and partners. With respect to business risks, the RP 
is triggered upon a loss that consumes the regulatory capital LCH SA 
holds against the relevant risks. The RP may also be triggered upon the 
failure of other financial market infrastructures.
4. Identification and Assessment of Recovery Tools
    The RP identifies the various recovery tools that may be applied by 
LCH SA upon the triggering of the RP, using again the same distinction 
between clearing member default events and non-clearing member events.
    For clearing member default scenarios, the existing stages of the 
LCH SA default management process have been used as the framework for 
identifying and confirming the appropriate tools to use in the event of 
a clearing member default. The RP describes that the default management 
process in detail and summarizes the actions to be taken at each phase, 
including, as mentioned above, (i) reestablishing the matched book, 
(ii) default fund assessments, (iii) service continuity charges, and 
(iv) voluntary payments. To the extent that the default fund and 
assessments cannot manage the losses accumulated from the clearing 
member default and any service continuity or voluntary service 
continuity contributions received are not sufficient to cover the 
relevant losses, the service closure phase of the default management 
process is triggered and all outstanding contracts will be closed out 
as of the clearing day following such determination and all relevant 
losses are allocated to the clearing members. If the RP is triggered as 
a result of a liquidity shortfall, the RP provides that LCH SA may use 
its central bank credit line to deposited securities received on behalf 
of defaulting clearing member(s).
    Other potential tools to manage liquidity stress situation are 
limits with respect to illiquid collateral or, if necessary apply 
increased haircuts on certain types of collateral to incentivize the 
use of more liquid collateral as well or apply specific liquidity 
margins.
    The measures should assure that LCH SA has sufficient liquid 
resources at all times. As a last resort, under its rulebook, LCH SA 
could defer funding for the settlement platform for a limited period of 
time.
    As to non-clearing member events, the tool that is used under the 
RP will depend on the nature of the event, but for most investment, 
business, and operational risks, LCH SA has its capital surplus that it 
can allocate losses against. Further, LCH SA can put in place several 
measures for capital conservation and LCH SA also maintains insurance 
coverage for specific operational risk events. As a last resort, LCH SA 
may also initiate a

[[Page 60250]]

capital raising strategy in order to obtain an injection of capital to 
replenish any consumed capital.
    If an event resulted in a major disruption of its activities, LCH 
SA would initiate its business continuity strategy, which establishes 
an enterprise wide RP and response proportionate to the event which 
aims to minimize the impact of a major disruption on LCH SA's critical 
business and resources. For any disruption or loss of key third-party 
service provider, LCH SA would be able to exercise several contractual 
rights and maintains exit plans which are intended to safeguard the 
continuity of services. LCH SA also maintains c back up procedures and 
protocols that would be initiated if there is an impact on critical 
services of FMIs, for example its ability to collect margin within T2 
under an emergency platform. Finally, LCH SA maintains a crisis 
communication plan which outlines the procedure for communicating with 
clearing members and partners in the event of a disruption.
    With respect to each recovery tool identified, the RP also seeks to 
assess that each tool possesses the following characteristics: 
Comprehensive; effective, including as to reliability, timeliness; 
transparent, provides appropriate incentives, and results in a minimum 
negative impact. To confirm that each recovery tool does, in fact, have 
these characteristics, the RP considers as to each: The barriers or 
constraints within the tool itself; the steps and time to implement (if 
not already available as a tool); the likely effectiveness of the tool; 
any risk of execution; the potential impacts on participants and 
markets generally; the sequencing of the use of the tools where 
multiple tools may be required; and the legal basis of the tool. The RP 
also includes a qualitative and quantitative assessment to provide an 
indication of the likelihood and severity of a potential recovery 
situation and whether the tools included in the RP are adequate.
5. Governance Requirements
    The creation of the RP and its approval is subject to a number of 
layers of governance approval. At a high level, the LCH SA Management 
Committee is responsible for the preparation of the RP and 
implementation of the monitoring and the recovery tools set forth in 
the RP. Before submission to the LCH SA Risk Committee, the RP is 
reviewed and validated by the Executive Risk Committee of LCH Group. 
The LCH SA Risk committee, which includes independent directors, then 
reviews, challenges (if needed), and recommends the RP for approval by 
the LCH SA board. Final approval of the RP rests with the LCH SA Board.
    At a more granular level, the RP identifies the groups and 
individuals within LCH SA that are responsible for the various aspects 
of the RP.
    A clearing member default will be managed in accordance with the 
relevant procedures. The Default Management Group (``DMG'') is 
responsible for the management of the default while all critical 
decisions are escalated and submitted to the LCH SA Default Crisis 
Management Team (``DCMT''). All decision which may lead to the 
triggering of recovery measures are subject to discussion in the DCMT 
and approval of the LCH SA CEO.
    With respect to non-clearing member events, the management of those 
events will depend on the nature of the event. For example, investment 
losses and liquidity shortfalls are managed from a first line of 
defense, which attempts to control risks within the risk appetite 
parameters set by the Board, and then are escalated as appropriate. 
Operational risks are managed in accordance with the operational risk 
policy approved by the Board and reporting and second line challenges 
are performed by the operational risk department. Business risk is 
managed by individual business lines and requires frequent monitoring 
of results against budget and financial plans, with a second line 
challenge performed by the risk and finance departments to verify if 
sufficient capital buffers are available for the applicable business 
risks.
    Upon the occurrence of a clearing member default, the recovery 
measures that will apply are clearly set forth in LCH SA's rulebook and 
LCH SA's CEO has the authority to trigger the different stages in the 
waterfall process, but will consult with DCMT and regulators prior to 
taking any action. In addition, the RP provides that the LCH SA will 
also activate an emergency board meeting for approval (if reasonably 
possible). Upon receipt of information relevant to a scenario causing 
non-default losses, the LCH SA management committee will consider 
whether a recommendation to formally invoke the RP should be made to 
the LCH SA Board. Upon receipt of a recommendation for action, the LCH 
SA Board will consider the information presented to determine if the RP 
should be formally invoked.
6. Plan Testing and Maintenance
    The RP requires that LCH SA conduct testing and review of member 
default rules and associated procedures through the running of periodic 
``fire drills'' which simulate member default scenarios. According to 
the RP, the fire drills are intended to simulate all aspects of a 
member default, including the auctioning of the defaulting members 
portfolio to non-defaulting members (where appropriate) and involves 
the participation of members and relevant functions within the LCH SA 
organization. Further, because one of the main scenarios contemplated 
under the RP is a clearing member default, the testing of this element 
(i.e. the tools to recover from uncovered credit losses or liquidity 
shortfalls arising from a member default) will be incorporated into 
each relevant fire drill cycle. As noted in the RP, LCH SA performs an 
annual multi-service fire drill and service specific fire drills are 
performed at least annually and testing for non-default events are 
incorporated into the fire drill regime as well. Should either the 
periodic testing or other change within LCH SA result in the need to 
amend the RP, the RP will be revised in accordance with the governance 
requirements identified above.
2. Statutory Basis
    LCH SA believes that the proposed rule change is consistent with 
the requirements of Section 17A of the Act and the regulations 
thereunder, including the standards under Rule 17Ad-22.\9\
---------------------------------------------------------------------------

    \9\ 17 CFR 240.17Ad-22.
---------------------------------------------------------------------------

    Section 17A(b)(3)(F) of the Act \10\ requires, among other things, 
that the rules of a clearing agency be designed to promote the prompt 
and accurate clearance and settlement of securities transactions to 
assure 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. LCH SA believes 
that the RP will permit it to initiate recovery upon the occurrence of 
certain trigger events to maintain continuity of critical services or 
orderly wind down in accordance with the applicable requirements of 
Rule 17Ad-22 \11\ and LCH SA's rules. The RP is designed to formalize 
and set out the risk framework and measures that LCH SA will use to 
ensure its stability and recovery in the event of a crisis in order to 
be able to maintain its critical business processes and operations. 
Specifically, the RP would describe the LCH SA risk framework and 
process applicable to identify, measure, monitor and manage the risks 
faced by LCH SA in the provision of clearing, settlement and risk 
management services when a crisis

[[Page 60251]]

event occurs. The RP would serve as a means of addressing, credit risk, 
market risk, general business risk, operational risk, and other risks 
that may otherwise threaten the viability of LCH SA. The RP would also 
support the stability of LCH SA as a clearing house that is part of the 
broader financial markets and seeks to promote the protection of market 
participants from the risk of default by a clearing member of LCH SA or 
an unforeseen operational or business event that impacts LCH SA's 
continued functioning. In that regard, LCH SA believes that the RP 
supports the public interest, in line with Section 17A(b)(3)(F) \12\ of 
the Act.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78q-1(b)(3)(F).
    \11\ 17 CFR 240.17Ad-22.
    \12\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    The RP would also be consistent with the specific relevant 
requirements of Rule 17Ad-22, including under 17Ad-22(e)(2) and 
(3).\13\ Rule 17Ad-22(e)(2) \14\ provides that a covered clearing 
agency shall have governance arrangements that are clear and 
transparent and clearly prioritize the safety and efficiency of the 
covered clearing agency, to support the public interest requirements in 
Section 17A of the Act applicable to clearing agencies, and the 
objectives of owners and participants. LCH SA believes that the RP is 
consistent with these requirements. The RP includes extensive 
governance requirements that clearly identify the lines of 
responsibility with respect to the RP. As described above, at a high 
level, the LCH SA Management Committee is responsible for the 
preparation of the RP and implementation of the monitoring and the 
recovery tools set forth in the RP. The LCH SA Risk committee, which 
includes clearing member representatives, then reviews, challenges (if 
needed), and recommends the RP for approval by the LCH SA board. Final 
approval of the RP rests with the LCH SA Board, which includes, among 
other categories, non-executive Chair, independent directors and user 
directors. At a more granular level, the RP identifies the groups and 
individuals within LCH SA that are responsible for the various aspects 
of the RP. Therefore, LCH SA believes that the RP contains governance 
arrangements that are clear and transparent and clearly prioritize the 
safety and efficiency of the covered clearing agency, to support the 
public interest requirements and the objectives of owners and 
participants, and is, therefore, consistent with the requirements of 
Rule 17Ad-22(e)(2).
---------------------------------------------------------------------------

    \13\ 17 CFR 240.17Ad-22(e)(2) and (3).
    \14\ 17 CFR 240.17Ad-22(e)(2).
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(3)\15\ requires that a covered clearing agency 
maintain a sound risk management framework for comprehensively managing 
legal, credit, liquidity, operational, general business, investment, 
custody, and other risks that arise in or are borne by the covered 
clearing agency, which must include plans for the recovery and orderly 
wind-down of the covered clearing agency necessitated by credit losses, 
liquidity shortfalls, losses from general business risk, or any other 
losses. The RP is designed to maintain the continuity of critical 
services in times of extreme stress and to facilitate the recovery of 
LCH SA in the event of extreme (loss) scenarios, as part of LCH SA's 
comprehensive risk management framework. As described above, the RP 
seeks to identify those services which could impact the continuity of 
LCH SA's operations, implement early warning indicators to identify 
potential recovery scenarios and define the triggers for initiating the 
RP, and clearly identify the recovery tools available under the RP. 
Accordingly, LCH SA believes the RP is consistent with Rule 17Ad-
22(e)(3).\16\
---------------------------------------------------------------------------

    \15\ 17 CFR 240.17Ad-22(e)(3).
    \16\ 17 CFR 240.17Ad-22(e)(3).
---------------------------------------------------------------------------

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.\17\ LCH SA does 
not believe the proposed rule change would impact or impose any burden 
on competition. The proposed rule change would establish and maintain 
LCH SA's RP in accordance with the CCA rules. The RP would not affect 
clearing member's access to services offered by LCH SA or impose any 
direct burden on clearing members. To the contrary, the RP seeks to 
identify the key risks and to establish appropriate recovery measures 
to ensure LCH SA's ability to operate in the event of an extreme loss. 
Accordingly, the proposed rule change would not unfairly inhibit market 
participants' access to LCH SA's services or disadvantage or favor any 
particular user in relationship to another user. 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.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

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 [email protected]. Please include 
File Number SR-LCH SA-2017-012 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-2017-012. 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 website (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

[[Page 60252]]

those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for website viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE, 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of LCH SA and on LCH 
SA's website at https://www.lch.com/asset-classes/cdsclear.
    All comments received will be posted without change. Persons 
submitting comments are cautioned that we do not redact or edit 
personal identifying information from comment submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-LCH SA-2017-012 and should 
be submitted on or before January 9, 2018.
---------------------------------------------------------------------------

    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-27235 Filed 12-18-17; 8:45 am]
 BILLING CODE 8011-01-P

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