Self-Regulatory Organizations; LCH SA; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to End of Day Price Contribution, 12052-12054 [2018-05448]
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12052
Federal Register / Vol. 83, No. 53 / Monday, March 19, 2018 / Notices
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
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 the Exchange. 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–PEARL–2018–07 and
should be submitted on or before April
9, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.33
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–05452 Filed 3–16–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
LCH SA is proposing to amend its
CDS Clearing Procedures (the
‘‘Procedures’’) in order to implement a
new window for end of day price
contribution for CDX North American
indices and related USD denominated
single name CDS transactions at New
York close of business (the ‘‘Proposed
Rule Change’’).
The text of the proposed rule change
has been annexed 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
[Release No. 34–82863; File No. SR–LCH
SA–2018–002]
Self-Regulatory Organizations; LCH
SA; Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change Relating to End of Day Price
Contribution
March 13, 2018.
sradovich on DSK3GMQ082PROD with NOTICES
business under the name LCH SA (‘‘LCH
SA’’), filed with the Securities and
Exchange Commission (‘‘Commission’’)
the proposed rule change described in
Items I, II and III below, which Items
have been prepared primarily by LCH
SA. LCH SA has filed the proposed rule
change pursuant to Section 19(b)(3)(A) 4
of the Act and Rule 19b–4(f)(4) 5
thereunder, so that the proposal was
effective upon filing with the
Commission. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
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 March 8,
2018,3 Banque Centrale de
Compensation, which conducts
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 This notice supersedes and replaces the notice
of this proposed rule change previously made
public on the Commission’s website on March 5,
2018.
1. Purpose
In connection with the clearing of
CDX North American indices and
related USD denominated single name
CDS transactions, LCH SA proposes to
modify the end of day price
contribution process by changing the
following timelines for a CDS
Contractual Currency 6 in US Dollar:
—The daily Price Requirement Files
availability for download from
between 14:30 and 15:00 GMT to from
14:30 New York City local time except
33 17
1 15
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Jkt 244001
4 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(4).
6 Capitalized terms not defined herein are defined
in LCH SA’s Rulebook, available at: https://
www.lch.com/resources/rules-and-regulations/sarulebooks.
5 17
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Frm 00099
Fmt 4703
Sfmt 4703
when the Price Contribution Day
occurs on the Price Contribution Day
immediately preceding 1st January,
4th July or 25th December for which
the files may be available earlier as
notified by LCH SA in advance;
—The daily Market Data submission by
Price Contribution Participants from
between 16:00 and 16:35 GMT to
between 16:30 and 16:35 New York
City local time, except when the Price
Contribution Day occurs on the Price
Contribution Day immediately
preceding 1st January, 4th July or 25th
December for which the files may be
available earlier as notified by LCH
SA in advance;
—The fallback to composite spread/
prices from 17:15 GMT to 17:15 New
York City local time;
—The disclosure of the occurrence of a
Firm Day to Price Contribution
Participants from promptly after the
closure of the submission window at
16:35 GMT to promptly after the
closure of the submission window at
16:35 New York City local time;
—The execution of a CDS Cross Trade
by Price Contribution Participants on
a Firm Day from prior to 18:30 GMT
to prior to 17:30 New York City local
time;
—The notification of execution of Cross
Trades on a Firm Day by a Price
Contribution Participant to LCH SA
from before 18:30 GMT to before
17:30 New York City local time.
LCH SA is also taking this
opportunity to make the following
amendments to Section 5 of the
Procedures with respect to the timeline
of the end of day price contribution
process for a CDS with a CDS
Contractual Currency in Euro and an
Index Swaption:
—The daily Price Requirement Files
availability for download from
between 14:30 and 15:00 GMT to from
13:15 GMT, except when the Price
Contribution Day occurs on the Price
Contribution Day immediately
preceding 1st January or 25th
December for which the files may be
available earlier as notified by LCH
SA in advance;
—The daily Market Data submission by
Price Contribution Participants from
between 16:00 and 16:35 GMT to
between 16:30 and 16:35 GMT, except
when the Price Contribution Day
occurs on the Price Contribution Day
immediately preceding 1st January or
25th December for which the files
may be available earlier as notified by
LCH SA in advance.
The main purpose of the Proposed
Rule Change is to allow LCH SA to mark
to market USD denominated index and
E:\FR\FM\19MRN1.SGM
19MRN1
Federal Register / Vol. 83, No. 53 / Monday, March 19, 2018 / Notices
sradovich on DSK3GMQ082PROD with NOTICES
single names positions with prices
contributed at the close rather than in
the middle of the trading session for
these instruments such that both the
Initial Margin and Variation Margin to
be settled at the following First Margin
Run are reflecting accurately the
entirety of the previous trading session
and the associated market moves.
2. Statutory Basis
LCH SA believes that the Proposed
Rule Change is consistent with the
requirements of Section 17A of the Act 7
and regulations thereunder applicable to
it, including the standards under Rule
17Ad–22.8
Specifically, Section 17A(b)(3)(F) 9 of
the Act 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 and derivative
agreements, contracts, and transactions
and to assure the safeguarding of
securities and funds which are in the
custody or control of the clearing agency
or for which it is responsible. As noted
above, the Proposed Rule Change will
allow LCH SA to reflect more accurately
in its Initial Margin and Variation
Margin calculations the entirety of the
market moves for USD denominated
index and single names observed in the
previous trading session, and thus
further strengthen the safeguarding of
securities and funds under control of
LCH SA.
LCH SA believes that the Proposed
Rule Change satisfies the requirements
of Rule 17Ad–22(b)(2), (b)(3), (e)(1),
(e)(4), and (e)(6).10
Rule 17Ad–22(b)(2) requires a
clearing agency acting as a central
counterparty to use margin
requirements to limit its credit
exposures to participants under normal
market conditions and to use risk-based
models and parameters to set margin
requirements.11 Rule 17Ad–22(b)(3) 12
requires each clearing agency acting as
a central counterparty for security-based
swaps to maintain sufficient financial
resources to withstand, at a minimum,
a default by the two participant families
to which it has the largest exposure in
extreme but plausible market conditions
(the ‘‘cover two standard’’). Rule 17Ad–
22(e)(4)(i) requires a covered clearing
agency to effectively identify, measure,
monitor, and manage its credit
exposures to participants and those
7 15
U.S.C. 78q–1.
CFR 240.17Ad–22.
9 15 U.S.C. 78q–1(b)(3)(F).
10 17 CFR 240.17Ad–22(b)(2), (b)(3), (e)(1), (e)(4),
and (e)(6).
11 17 CFR 240.17Ad–22(b)(2).
12 17 CFR 240.17Ad–22(b)(3).
arising from its payment, clearing and
settlement processes by maintaining
sufficient financial resources to cover its
credit exposure to each participant fully
with a high degree of confidence,13 and
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 meets certain minimum
requirements.14
As described above, LCH SA proposes
to amend the timeline of the end of
price contribution process for USD
denominated index and single name
positions to reflect the market moves
observed during the entirety of the
previous trading session in the
calculation of the Initial Margin and
Variation Margin to be settled at the
following First Margin Run. This
implies that the margin requirements set
by LCH SA and use of such margin
requirements limit LCH SA’s credit
exposures to participants in clearing
USD denominated index and single
name CDS transactions under normal
market conditions, consistent with Rule
17Ad–22(b)(2).15 LCH SA also believes
that its current risk-based margin
methodology, by relying on prices
contributed at the close of the trading
session, takes into account, and
generates margin levels commensurate
with, the risks and particular attributes
of USD denominated index and single
name CDS transactions at the product
and portfolio levels, appropriate to the
relevant market it serves, consistent
with Rule 17Ad–22(e)(6)(i) and (v).16 In
addition, LCH SA believes that the
margin calculation under the current
CDSClear margin framework and based
on prices for USD denominated index
and single name positions contributed
at the close of the trading session would
also sufficiently account for the 5-day
liquidation period for house account
portfolio and 7-day liquidation period
for client portfolio and therefore, is
reasonably designed to cover LCH SA’s
potential future exposure to participants
in the interval between the last margin
collection and the close out of positions
following a participant default,
consistent with Rule 17Ad–
22(e)(6)(iii).17
Further, Rule 17Ad–22(b)(3) requires
a clearing agency acting as a central
counterparty for security-based swaps to
establish policies and procedures
reasonably designed to maintain the
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cover two standard.18 Similarly, Rule
17Ad–22(e)(4)(ii) requires a covered
clearing agency that provides central
counterparty services for security-based
swaps to maintain financial resources
additional to margin to enable it to
cover a wide range of foreseeable stress
scenarios that include, but are not
limited to, meeting the cover two
standard.19 LCH SA believes that its
current Default Fund methodology
based on prices for USD denominated
index and single name positions
provided at the close of the trading
session will also appropriately
incorporate the risk of clearing USD
denominated index and single name
CDS transactions, as together with the
existing CDSClear margin framework,
will be reasonably designed to ensure
that LCH SA maintains sufficient
financial resources to meet the cover
two standard, in accordance with Rule
17Ad–22(b)(3) and (e)(4)(ii).20
LCH SA also believes that the
proposed rule change is consistent with
Rule 17Ad–22(e)(1), which requires
each covered clearing agency’s policies
and procedures be reasonably designed
to provide for a well-founded, clear,
transparent, and enforceable legal basis
for each aspect of its activities in all
relevant jurisdictions.21 As described
above, the proposed rule change would
make a clear distinction on the
timelines associated to the end of day
price contribution process for Euro and
USD denominated positions. LCH SA
believes that this change would provide
for a clear and transparent legal basis for
CDSClear clearing members’
requirement to provide accurate prices
on all of their open positions, consistent
with Rule 17Ad–22(e)(1).22
For the reasons stated above, LCH SA
believes that the proposed rule change
is consistent with the requirements of
prompt and accurate clearance and
settlement of securities transactions and
derivatives agreements, contracts and
transactions, and assuring the
safeguarding of securities and funds in
the custody or control of the clearing
agency or for which it is responsible, in
accordance with 17A(b)(3)(F) of the
Act.23
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 do not impose any burden on
18 17
8 17
13 17
CFR 240.17Ad–22(e)(4)(i).
14 17 CFR 240.17Ad–22(e)(6).
15 17 CFR 240.17Ad–22(b)(2).
16 17 CFR 240.17Ad–22(e)(6)(i) and (v).
17 17 CFR 240.17Ad–22(e)(6)(iii).
PO 00000
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Fmt 4703
Sfmt 4703
12053
CFR 240.17Ad–22(b)(3).
CFR 240.17Ad–22(e)(4)(ii).
20 17 CFR 240.17Ad–22(b)(3) and (e)(4)(ii).
21 17 CFR 240.17Ad–22(e)(1).
22 17 CFR 240.17Ad–22(e)(1).
23 15 U.S.C. 78q–1(b)(3)(F).
19 17
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12054
Federal Register / Vol. 83, No. 53 / Monday, March 19, 2018 / Notices
competition not necessary or
appropriate in furtherance of the
purposes of the Act.24
The Proposed Rule Change will apply
equally to all CDSClear members and
clients and does not adversely affect
their ability to engage in cleared
transactions or to access clearing
services offered by LCH SA CDSClear.
Therefore, LCH SA does not believe
that the Proposed Rule Change would
have any impact, or impose 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
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 25 and paragraph (f) of Rule
19b–4 thereunder.26 At any time within
60 days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
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:
sradovich on DSK3GMQ082PROD with NOTICES
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–2018–002 on the subject line.
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
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–2018–002
and should be submitted on or before
April 9, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–05448 Filed 3–16–18; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–82864; File No. SR–
NYSEAMER–2018–07]
Self-Regulatory Organizations; NYSE
American LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Amending the NYSE
American Company Guide To Require
That Listed Companies Provide Notice
to the Exchange of Announcements of
Dividends or Stock Distributions at
Least Ten Minutes in Advance of
Public Release
March 13, 2018.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’),2 and Rule 19b–4 thereunder,3
notice is hereby given that on March 1,
2018, NYSE American LLC (the
‘‘Exchange’’ or ‘‘NYSE American’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the self-regulatory
organization. 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 proposes to amend the
NYSE American Company Guide (the
‘‘Company Guide’’) to (i) require that
listed companies provide notice to the
Exchange of announcements of
dividends or stock distributions at least
10 minutes in advance of public release,
(ii) clarify the application of the
immediate release policy to dividends
and stock distributions, and (iii) adopt
a provision specifying how listed
companies must provide required
notifications to the Exchange.
The proposed rule change is available
on the Exchange’s website at
www.nyse.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
self-regulatory organization 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
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–2018–002. This
U.S.C. 78q–1(b)(3)(I).
U.S.C. 78s.
26 17 CFR 240.19b–4.
SECURITIES AND EXCHANGE
COMMISSION
24 15
1 15
25 15
2 15
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27 17
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PO 00000
CFR 200.30–3(a)(12).
Frm 00101
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Sfmt 4703
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
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]]>Agencies
[Federal Register Volume 83, Number 53 (Monday, March 19, 2018)]
[Notices]
[Pages 12052-12054]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-05448]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82863; File No. SR-LCH SA-2018-002]
Self-Regulatory Organizations; LCH SA; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change Relating to End of
Day Price Contribution
March 13, 2018.
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 March 8, 2018,\3\ Banque Centrale de Compensation, which conducts
business under the name LCH SA (``LCH SA''), filed with the Securities
and Exchange Commission (``Commission'') the proposed rule change
described in Items I, II and III below, which Items have been prepared
primarily by LCH SA. LCH SA has filed the proposed rule change pursuant
to Section 19(b)(3)(A) \4\ of the Act and Rule 19b-4(f)(4) \5\
thereunder, so that the proposal was effective upon filing with the
Commission. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ This notice supersedes and replaces the notice of this
proposed rule change previously made public on the Commission's
website on March 5, 2018.
\4\ 15 U.S.C. 78s(b)(3)(A).
\5\ 17 CFR 240.19b-4(f)(4).
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
LCH SA is proposing to amend its CDS Clearing Procedures (the
``Procedures'') in order to implement a new window for end of day price
contribution for CDX North American indices and related USD denominated
single name CDS transactions at New York close of business (the
``Proposed Rule Change'').
The text of the proposed rule change has been annexed 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
In connection with the clearing of CDX North American indices and
related USD denominated single name CDS transactions, LCH SA proposes
to modify the end of day price contribution process by changing the
following timelines for a CDS Contractual Currency \6\ in US Dollar:
---------------------------------------------------------------------------
\6\ Capitalized terms not defined herein are defined in LCH SA's
Rulebook, available at: https://www.lch.com/resources/rules-and-regulations/sa-rulebooks.
--The daily Price Requirement Files availability for download from
between 14:30 and 15:00 GMT to from 14:30 New York City local time
except when the Price Contribution Day occurs on the Price Contribution
Day immediately preceding 1st January, 4th July or 25th December for
which the files may be available earlier as notified by LCH SA in
advance;
--The daily Market Data submission by Price Contribution Participants
from between 16:00 and 16:35 GMT to between 16:30 and 16:35 New York
City local time, except when the Price Contribution Day occurs on the
Price Contribution Day immediately preceding 1st January, 4th July or
25th December for which the files may be available earlier as notified
by LCH SA in advance;
--The fallback to composite spread/prices from 17:15 GMT to 17:15 New
York City local time;
--The disclosure of the occurrence of a Firm Day to Price Contribution
Participants from promptly after the closure of the submission window
at 16:35 GMT to promptly after the closure of the submission window at
16:35 New York City local time;
--The execution of a CDS Cross Trade by Price Contribution Participants
on a Firm Day from prior to 18:30 GMT to prior to 17:30 New York City
local time;
--The notification of execution of Cross Trades on a Firm Day by a
Price Contribution Participant to LCH SA from before 18:30 GMT to
before 17:30 New York City local time.
LCH SA is also taking this opportunity to make the following
amendments to Section 5 of the Procedures with respect to the timeline
of the end of day price contribution process for a CDS with a CDS
Contractual Currency in Euro and an Index Swaption:
--The daily Price Requirement Files availability for download from
between 14:30 and 15:00 GMT to from 13:15 GMT, except when the Price
Contribution Day occurs on the Price Contribution Day immediately
preceding 1st January or 25th December for which the files may be
available earlier as notified by LCH SA in advance;
--The daily Market Data submission by Price Contribution Participants
from between 16:00 and 16:35 GMT to between 16:30 and 16:35 GMT, except
when the Price Contribution Day occurs on the Price Contribution Day
immediately preceding 1st January or 25th December for which the files
may be available earlier as notified by LCH SA in advance.
The main purpose of the Proposed Rule Change is to allow LCH SA to
mark to market USD denominated index and
[[Page 12053]]
single names positions with prices contributed at the close rather than
in the middle of the trading session for these instruments such that
both the Initial Margin and Variation Margin to be settled at the
following First Margin Run are reflecting accurately the entirety of
the previous trading session and the associated market moves.
2. Statutory Basis
LCH SA believes that the Proposed Rule Change is consistent with
the requirements of Section 17A of the Act \7\ and regulations
thereunder applicable to it, including the standards under Rule 17Ad-
22.\8\
---------------------------------------------------------------------------
\7\ 15 U.S.C. 78q-1.
\8\ 17 CFR 240.17Ad-22.
---------------------------------------------------------------------------
Specifically, Section 17A(b)(3)(F) \9\ of the Act 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 and derivative agreements, contracts, and transactions and
to assure the safeguarding of securities and funds which are in the
custody or control of the clearing agency or for which it is
responsible. As noted above, the Proposed Rule Change will allow LCH SA
to reflect more accurately in its Initial Margin and Variation Margin
calculations the entirety of the market moves for USD denominated index
and single names observed in the previous trading session, and thus
further strengthen the safeguarding of securities and funds under
control of LCH SA.
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
LCH SA believes that the Proposed Rule Change satisfies the
requirements of Rule 17Ad-22(b)(2), (b)(3), (e)(1), (e)(4), and
(e)(6).\10\
---------------------------------------------------------------------------
\10\ 17 CFR 240.17Ad-22(b)(2), (b)(3), (e)(1), (e)(4), and
(e)(6).
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Rule 17Ad-22(b)(2) requires a clearing agency acting as a central
counterparty to use margin requirements to limit its credit exposures
to participants under normal market conditions and to use risk-based
models and parameters to set margin requirements.\11\ Rule 17Ad-
22(b)(3) \12\ requires each clearing agency acting as a central
counterparty for security-based swaps to maintain sufficient financial
resources to withstand, at a minimum, a default by the two participant
families to which it has the largest exposure in extreme but plausible
market conditions (the ``cover two standard''). Rule 17Ad-22(e)(4)(i)
requires a covered clearing agency to effectively identify, measure,
monitor, and manage its credit exposures to participants and those
arising from its payment, clearing and settlement processes by
maintaining sufficient financial resources to cover its credit exposure
to each participant fully with a high degree of confidence,\13\ and
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 meets
certain minimum requirements.\14\
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\11\ 17 CFR 240.17Ad-22(b)(2).
\12\ 17 CFR 240.17Ad-22(b)(3).
\13\ 17 CFR 240.17Ad-22(e)(4)(i).
\14\ 17 CFR 240.17Ad-22(e)(6).
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As described above, LCH SA proposes to amend the timeline of the
end of price contribution process for USD denominated index and single
name positions to reflect the market moves observed during the entirety
of the previous trading session in the calculation of the Initial
Margin and Variation Margin to be settled at the following First Margin
Run. This implies that the margin requirements set by LCH SA and use of
such margin requirements limit LCH SA's credit exposures to
participants in clearing USD denominated index and single name CDS
transactions under normal market conditions, consistent with Rule 17Ad-
22(b)(2).\15\ LCH SA also believes that its current risk-based margin
methodology, by relying on prices contributed at the close of the
trading session, takes into account, and generates margin levels
commensurate with, the risks and particular attributes of USD
denominated index and single name CDS transactions at the product and
portfolio levels, appropriate to the relevant market it serves,
consistent with Rule 17Ad-22(e)(6)(i) and (v).\16\ In addition, LCH SA
believes that the margin calculation under the current CDSClear margin
framework and based on prices for USD denominated index and single name
positions contributed at the close of the trading session would also
sufficiently account for the 5-day liquidation period for house account
portfolio and 7-day liquidation period for client portfolio and
therefore, is reasonably designed to cover LCH SA's potential future
exposure to participants in the interval between the last margin
collection and the close out of positions following a participant
default, consistent with Rule 17Ad-22(e)(6)(iii).\17\
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\15\ 17 CFR 240.17Ad-22(b)(2).
\16\ 17 CFR 240.17Ad-22(e)(6)(i) and (v).
\17\ 17 CFR 240.17Ad-22(e)(6)(iii).
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Further, Rule 17Ad-22(b)(3) requires a clearing agency acting as a
central counterparty for security-based swaps to establish policies and
procedures reasonably designed to maintain the cover two standard.\18\
Similarly, Rule 17Ad-22(e)(4)(ii) requires a covered clearing agency
that provides central counterparty services for security-based swaps to
maintain financial resources additional to margin to enable it to cover
a wide range of foreseeable stress scenarios that include, but are not
limited to, meeting the cover two standard.\19\ LCH SA believes that
its current Default Fund methodology based on prices for USD
denominated index and single name positions provided at the close of
the trading session will also appropriately incorporate the risk of
clearing USD denominated index and single name CDS transactions, as
together with the existing CDSClear margin framework, will be
reasonably designed to ensure that LCH SA maintains sufficient
financial resources to meet the cover two standard, in accordance with
Rule 17Ad-22(b)(3) and (e)(4)(ii).\20\
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\18\ 17 CFR 240.17Ad-22(b)(3).
\19\ 17 CFR 240.17Ad-22(e)(4)(ii).
\20\ 17 CFR 240.17Ad-22(b)(3) and (e)(4)(ii).
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LCH SA also believes that the proposed rule change is consistent
with Rule 17Ad-22(e)(1), which requires each covered clearing agency's
policies and procedures be reasonably designed to provide for a well-
founded, clear, transparent, and enforceable legal basis for each
aspect of its activities in all relevant jurisdictions.\21\ As
described above, the proposed rule change would make a clear
distinction on the timelines associated to the end of day price
contribution process for Euro and USD denominated positions. LCH SA
believes that this change would provide for a clear and transparent
legal basis for CDSClear clearing members' requirement to provide
accurate prices on all of their open positions, consistent with Rule
17Ad-22(e)(1).\22\
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\21\ 17 CFR 240.17Ad-22(e)(1).
\22\ 17 CFR 240.17Ad-22(e)(1).
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For the reasons stated above, LCH SA believes that the proposed
rule change is consistent with the requirements of prompt and accurate
clearance and settlement of securities transactions and derivatives
agreements, contracts and transactions, and assuring the safeguarding
of securities and funds in the custody or control of the clearing
agency or for which it is responsible, in accordance with 17A(b)(3)(F)
of the Act.\23\
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\23\ 15 U.S.C. 78q-1(b)(3)(F).
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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 do not impose any burden on
[[Page 12054]]
competition not necessary or appropriate in furtherance of the purposes
of the Act.\24\
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\24\ 15 U.S.C. 78q-1(b)(3)(I).
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The Proposed Rule Change will apply equally to all CDSClear members
and clients and does not adversely affect their ability to engage in
cleared transactions or to access clearing services offered by LCH SA
CDSClear.
Therefore, LCH SA does not believe that the Proposed Rule Change
would have any impact, or impose 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
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \25\ and paragraph (f) of Rule 19b-4
thereunder.\26\ At any time within 60 days of the filing of the
proposed rule change, the Commission summarily may temporarily suspend
such rule change if it appears to the Commission that such action is
necessary or appropriate in the public interest, for the protection of
investors, or otherwise in furtherance of the purposes of the Act.
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\25\ 15 U.S.C. 78s.
\26\ 17 CFR 240.19b-4.
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-LCH SA-2018-002 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-2018-002. 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 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-2018-002 and should
be submitted on or before April 9, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
Eduardo A. Aleman,
Assistant Secretary.
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\27\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2018-05448 Filed 3-16-18; 8:45 am]
BILLING CODE 8011-01-P
