Self-Regulatory Organizations; LCH SA; Notice of Filing of Proposed Rule Change Relating to Amendments to CDS Clearing Supplement To Reflect the ISDA NTCE Protocol and Supplement, 67325-67327 [2019-26408]

Download as PDF Federal Register / Vol. 84, No. 236 / Monday, December 9, 2019 / Notices affecting small and emerging companies under the federal securities laws. CONTACT PERSON FOR MORE INFORMATION: For further information, please contact the Office of the Secretary at (202) 551– 5400. Dated: December 4, 2019. Vanessa A. Countryman, Secretary. [FR Doc. 2019–26509 Filed 12–5–19; 11:15 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–87649; File No. SR–LCH SA–2019–011] Self-Regulatory Organizations; LCH SA; Notice of Filing of Proposed Rule Change Relating to Amendments to CDS Clearing Supplement To Reflect the ISDA NTCE Protocol and Supplement December 3, 2019. 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 21, 2019, 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 by LCH SA. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. khammond on DSKJM1Z7X2PROD with NOTICES I. Clearing Agency’s Statement of the Terms of Substance of the Proposed Rule Change Banque Centrale de Compensation, which conducts business under the name LCH SA (‘‘LCH SA’’), is proposing to amend its CDS Clearing Supplement (‘‘Supplement’’) to incorporate new terms and to make conforming, clarifying, and clean-up changes intended to: (1) Incorporate the ISDA 2019 Narrowly Tailored Credit Event Protocol (the ‘‘NTCE Protocol’’) into the Supplement, allowing parties to amend their legacy transactions to incorporate the 2019 Narrowly Tailored Credit Event Supplement to the 2014 ISDA Credit Derivatives Definitions (the ‘‘NTCE Supplement’’); and (2) make certain clarifications as to the notion of Outstanding Principal Balance, which shall always have the meaning set out in the ISDA 2003 and ISDA 2014 Credit U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 17:22 Dec 06, 2019 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 LCH SA is proposing to amend its Supplement to reflect the NTCE Protocol, and the NTCE Supplement amending the 2014 ISDA Credit Derivatives Definitions addressing narrowly tailored credit events (‘‘NTCEs’’). NTCEs are arrangements with corporations that cause a credit event leading to settlement of CDS contracts while minimizing the impact on the corporation. ISDA published a statement from its Board of Directors in April 2018 noting concerns with the impact of such events on the efficiency, reliability and fairness of the overall CDS market. The NTCE Protocol, due for implementation on 27 January 2020, incorporates the terms of the NTCE Supplement for legacy uncleared in-scope single name and index transactions to match the new trading standard. Yet, CCPs are expected to reflect the NTCE Protocol changes to the transactions they clear by an amendment to their clearing rules, and the final implementation date will be aligned so that the changes will go into effect for trades cleared at different CCPs and for uncleared trades at the same time. As such, LCH SA has determined to file this proposed rule change in order to, among other things, amend its CDS Clearing Supplement to reflect the changes brought by the NTCE Protocol and NTCE Supplement. Such changes will therefore be incorporated for new trades on corporate and financial 3 All capitalized terms not defined herein have the same definition as the Rule Book, Supplement or Procedures, as applicable. 1 15 VerDate Sep<11>2014 Derivatives Definitions. Capitalized terms not defined or modified in this rule proposal will have the same meaning as in LCH SA’s existing Rule Book, Supplement, or Procedures. The text of the proposed rule change has been annexed as Exhibit 5.3 Jkt 250001 PO 00000 Frm 00072 Fmt 4703 Sfmt 4703 67325 Reference Entities by updating the ISDA Credit Derivatives Physical Settlement Matrix. (a) Amendments To Reflect the NTCE Protocol for Cleared Transactions The updated CDS Clearing Rules will permit Clearing Members to match the new trading standard for their Index Cleared Transactions and their Single Name Cleared Transactions, without the need for LCH SA to adhere to the NTCE Protocol. To implement the ISDA NTCE Protocol and NTCE Supplement, the Supplement will be amended by adding new and amending existing provisions as described below. In support of the above matter, LCH SA will add new provisions to the Supplement in each of Part B & Part C. Each of these changes in these two sections are substantially similar. For Index Cleared Transactions and Single Name Transactions incorporating the 2014 ISDA Credit Derivatives Definitions: D Part B, Section 1.2 Terms defined in the CDS Clearing Supplement—the definition of Index Cleared Transaction Confirmation will be updated with the date of the amended confirmation as published by Markit Group Limited, both for references Markit iTraxx® Europe Index Series 22 or above (a) and Markit CDXTM Index Series 23 or above (b); D Part B, Section 2.2 (g) and (h) will be added to the Supplement—The Index Cleared Transaction Confirmation will be amended for NTCE Protocol covered transactions by making the notions of Credit Deterioration Requirement and Fallback Discounting applicable, in accordance with the Relevant Physical Settlement Matrix and amended confirmation as published by Markit Group Limited; D Part B, Section 2.3 (h) and (i) will be added to the Supplement—The Single Name Cleared Transaction Confirmation will be amended for NTCE Protocol covered transactions by making the notions of Credit Deterioration Requirement and Fallback Discounting applicable, in accordance with the Relevant Physical Settlement Matrix and amended confirmation as published by Markit Group Limited; D Part B, Section 2.4 (e) will be added to the Supplement—The amendments brought by the NTCE Protocol and subsequent NTCE Supplement to the 2014 ISDA Credit Derivatives Definitions shall only be applicable where the Protocol Effectiveness Condition, as defined in the NTCE Protocol, is satisfied; D Part B, APPENDIX XIII, Section 2.6 will be added to the Supplement— E:\FR\FM\09DEN1.SGM 09DEN1 67326 Federal Register / Vol. 84, No. 236 / Monday, December 9, 2019 / Notices khammond on DSKJM1Z7X2PROD with NOTICES Mirroring the Part B, Section 2.4 (e) mentioned above, this addition ensures that the amendments brought by the NTCE Protocol and subsequent NTCE Supplement to the 2014 ISDA Credit Derivatives Definitions shall only be applicable to CCM Client Transactions where the Protocol Effectiveness Condition, as defined in the NTCE Protocol, is satisfied. For Credit Index Swaptions: D Part C, Section 1.2 Terms defined in the CDS Clearing Supplement—the definition of iTraxx® Europe Untranched Transactions Swaption Standard Terms Supplement will be updated with the date of the amended iTraxx® Europe Untranched Transactions Swaption Standard Terms Supplement as published by Markit Indices Limited; D Part C, Section 2.2 (f) and (g) will be added to the Supplement—The Index Swaption Cleared Transaction Confirmation will be amended for NTCE Protocol covered transactions by making the notions of Credit Deterioration Requirement and Fallback Discounting applicable, in accordance with the Relevant Physical Settlement Matrix; D Part C, Section 2.3 (b) will be added to the Supplement—The amendments brought by the NTCE Protocol and subsequent NTCE Supplement to the 2014 ISDA Credit Derivatives Definitions shall only be applicable where the Protocol Effectiveness Condition, as defined in the NTCE Protocol, is satisfied; D Part C, APPENDIX VIII, Section 1 will be updated with the date of the amended iTraxx® Europe Untranched Transactions Swaption Standard Terms Supplement as published by Markit Indices Limited; D Part C, APPENDIX VIII, Section 2.4 will be added to the Supplement— Mirroring the Part C, Section 2.3 (b) mentioned above, this addition ensures that the amendments brought by the NTCE Protocol and subsequent NTCE Supplement to the 2014 ISDA Credit Derivatives Definitions shall only be applicable to CCM Client Transactions where the Protocol Effectiveness Condition, as defined in the NTCE Protocol, is satisfied (b) Amendments To Harmonize the Use and Definition of Outstanding Principal Balance LCH has noticed that the term ‘‘Outstanding Principal Balance’’ appears throughout the Supplement using both small and capitalized letters. The entire Supplement will be harmonized in that sense that any reference to an Outstanding Principal Balance shall be with capitalized letters, VerDate Sep<11>2014 17:22 Dec 06, 2019 Jkt 250001 so as to refer to the Outstanding Principal Balance defined, for Part A of the Supplement, in the ISDA 2003 Credit Derivatives Definitions, and for Parts B & C, in the ISDA 2014 Credit Derivatives Definitions. 2. Statutory Basis LCH SA believes that the proposed rule change in connection with the ISDA NTCE Protocol and NTCE Supplement is consistent with the requirements of Section 17A of the Securities Exchange Act of 1934 4 (the ‘‘Act’’) and the regulations thereunder, including the standards under Rule 17Ad–22 5. In particular, Section 17(A)(b)(3)(F)6 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 derivatives agreements, contracts, and transactions cleared 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 and the protection of investors and the public interest.6 Further, Rule 17d–22(e)(1) requires a covered clearing agency to provide for a well-founded, clear, transparent and enforceable legal basis for each aspect of its activities in all relevant jurisdictions. Rule 17d–22(e)(iii) also requires to support the objectives of participants. The ISDA 2019 NTCE Protocol and Supplement are a wide industry’s response to the concerns raised by both market participants and regulators regarding NTCEs and their potential market on the CDS markets. ISDA has expressed concern that ‘‘narrowly tailored defaults . . . could negatively impact the efficiency, reliability and fairness of the overall CDS market.’’ Regulators have also expressed concern with narrowly tailored or manufactured credit events, including a joint statement by the heads of the Commission, the Commodity Futures Trading Commission and the UK Financial Conduct Authority that such strategies ‘‘may adversely affect the integrity, confidence and reputation of the credit derivatives markets, as well as markets more generally. These opportunistic strategies raise various issues under securities, derivatives, conduct and antifraud laws, as well as policy concerns.’’ 7 4 15 U.S.C. 78q–1. 5 17 CFR 240.17Ad–22. 6 15 U.S.C. 78q–1(b)(3)(F). 7 Securities and Exchange Commission, Commodity Futures Trading Commission and UK Financial Conduct Authority, Joint Statement on Opportunistic Strategies in the Credit Derivatives Markets (June 24, 2019); see also Update to June PO 00000 Frm 00073 Fmt 4703 Sfmt 4703 It was understood that the heads of the Commission, the Commodity Futures Trading Commission and the UK Financial Conduct Authority have stated that they welcome the efforts to implement the amendments set out in the NTCE Supplement and NTCE Protocol.8 So, as all CCPs, LCH SA is expected to modify its rules so that the NTCE Supplement’s terms will also apply to all cleared CDS transactions entered into after the implementation date. The LCH SA CDSClear proposed rule change is fully consistent with the amendments of the ISDA credit derivatives documentation and incorporates changes to the standard terms of CDS Contracts widely adopted by market participants. For all the reasons above, LCH SA believes that the proposed rule change is consistent with the requirements of Section 17A of the Securities Exchange Act of 1934 9 (the ‘‘Act’’) and the regulations thereunder, including the standards under Rule 17Ad–2210. 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.11 As mentioned above, the LCH SA CDSClear proposed rule change is reflecting the ISDA 2019 NTCE Protocol and Supplement that is an industry response and initiative applicable to all CDS market participants. The proposed rule change would apply equally to all Clearing Members and their Clients and would not adversely affect the ability of such members or other market participants generally to engage in cleared transactions or to access LCH SA’s clearing services. Therefore, LCH SA does not believe that the proposed rule change would impose a burden on competition not necessary or appropriate in furtherance of the purposes of the Act. 2019 Joint CFTC–SEC–FCA Statement on Opportunistic Strategies in the Credit Derivatives Market (Sept. 19, 2019). 8 Update to June 2019 Joint CFTC–SEC–FCA Statement on Opportunistic Strategies in the Credit Derivatives Markets (Sept. 19, 2019). 9 15 U.S.C. 78q–1. 10 17 CFR 240.17Ad–22. 11 15 U.S.C. 78q–1(b)(3)(I). E:\FR\FM\09DEN1.SGM 09DEN1 Federal Register / Vol. 84, No. 236 / Monday, December 9, 2019 / Notices 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–2019–011 on the subject line. khammond on DSKJM1Z7X2PROD with NOTICES 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–2019–011. 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 VerDate Sep<11>2014 17:22 Dec 06, 2019 Jkt 250001 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/ resources/rules-and-regulations/ proposed-rule-changes-0. 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–2019–011 and should be submitted on or before December 30, 2019. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.12 Jill M. Peterson, Assistant Secretary. [FR Doc. 2019–26408 Filed 12–6–19; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Sunshine Act Meetings 1:00 p.m. on Wednesday, December 11, 2019. PLACE: The meeting will be held at the Commission’s headquarters, 100 F Street NE, Washington, DC 20549. 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. In the event that the time, date, or location of this meeting changes, an announcement of the change, along with the new time, date, and/or place of the meeting will be posted on the Commission’s website at https:// www.sec.gov. 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) TIME AND DATE: 12 17 PO 00000 CFR 200.30–3(a)(12). Frm 00074 Fmt 4703 Sfmt 4703 67327 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. The subject matters of the closed meeting will consist of the following topics: 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 agenda items that may consist of adjudicatory, examination, litigation, or regulatory matters. CONTACT PERSON FOR MORE INFORMATION: For further information; please contact Vanessa A. Countryman from the Office of the Secretary at (202) 551–5400. Dated: December 4, 2019. Vanessa A. Countryman, Secretary. [FR Doc. 2019–26496 Filed 12–5–19; 11:15 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–87651; File No. SR– CboeBZX–2019–099] Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Allow the Hartford Short Duration ETF To Hold Certain Fixed Income Instruments in a Manner That Does Not Comply With Rule 14.11(i) December 3, 2019. 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 20, 2019, Cboe BZX Exchange, Inc. (‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Exchange filed the proposal as a ‘‘noncontroversial’’ proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 3 and Rule 19b–4(f)(6) thereunder.4 The Commission is publishing this notice to solicit 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(iii). 4 17 CFR 240.19b–4(f)(6). 2 17 E:\FR\FM\09DEN1.SGM 09DEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 84, Number 236 (Monday, December 9, 2019)]
[Notices]
[Pages 67325-67327]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-26408]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87649; File No. SR-LCH SA-2019-011]


Self-Regulatory Organizations; LCH SA; Notice of Filing of 
Proposed Rule Change Relating to Amendments to CDS Clearing Supplement 
To Reflect the ISDA NTCE Protocol and Supplement

December 3, 2019.
    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 21, 2019, 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 
by LCH SA. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    Banque Centrale de Compensation, which conducts business under the 
name LCH SA (``LCH SA''), is proposing to amend its CDS Clearing 
Supplement (``Supplement'') to incorporate new terms and to make 
conforming, clarifying, and clean-up changes intended to: (1) 
Incorporate the ISDA 2019 Narrowly Tailored Credit Event Protocol (the 
``NTCE Protocol'') into the Supplement, allowing parties to amend their 
legacy transactions to incorporate the 2019 Narrowly Tailored Credit 
Event Supplement to the 2014 ISDA Credit Derivatives Definitions (the 
``NTCE Supplement''); and (2) make certain clarifications as to the 
notion of Outstanding Principal Balance, which shall always have the 
meaning set out in the ISDA 2003 and ISDA 2014 Credit Derivatives 
Definitions. Capitalized terms not defined or modified in this rule 
proposal will have the same meaning as in LCH SA's existing Rule Book, 
Supplement, or Procedures.
    The text of the proposed rule change has been annexed as Exhibit 
5.\3\
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    \3\ All capitalized terms not defined herein have the same 
definition as the Rule Book, Supplement or Procedures, as 
applicable.
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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
    LCH SA is proposing to amend its Supplement to reflect the NTCE 
Protocol, and the NTCE Supplement amending the 2014 ISDA Credit 
Derivatives Definitions addressing narrowly tailored credit events 
(``NTCEs''). NTCEs are arrangements with corporations that cause a 
credit event leading to settlement of CDS contracts while minimizing 
the impact on the corporation.
    ISDA published a statement from its Board of Directors in April 
2018 noting concerns with the impact of such events on the efficiency, 
reliability and fairness of the overall CDS market. The NTCE Protocol, 
due for implementation on 27 January 2020, incorporates the terms of 
the NTCE Supplement for legacy uncleared in-scope single name and index 
transactions to match the new trading standard. Yet, CCPs are expected 
to reflect the NTCE Protocol changes to the transactions they clear by 
an amendment to their clearing rules, and the final implementation date 
will be aligned so that the changes will go into effect for trades 
cleared at different CCPs and for uncleared trades at the same time.
    As such, LCH SA has determined to file this proposed rule change in 
order to, among other things, amend its CDS Clearing Supplement to 
reflect the changes brought by the NTCE Protocol and NTCE Supplement. 
Such changes will therefore be incorporated for new trades on corporate 
and financial Reference Entities by updating the ISDA Credit 
Derivatives Physical Settlement Matrix.
(a) Amendments To Reflect the NTCE Protocol for Cleared Transactions
    The updated CDS Clearing Rules will permit Clearing Members to 
match the new trading standard for their Index Cleared Transactions and 
their Single Name Cleared Transactions, without the need for LCH SA to 
adhere to the NTCE Protocol. To implement the ISDA NTCE Protocol and 
NTCE Supplement, the Supplement will be amended by adding new and 
amending existing provisions as described below.
    In support of the above matter, LCH SA will add new provisions to 
the Supplement in each of Part B & Part C. Each of these changes in 
these two sections are substantially similar.
    For Index Cleared Transactions and Single Name Transactions 
incorporating the 2014 ISDA Credit Derivatives Definitions:
    [ssquf] Part B, Section 1.2 Terms defined in the CDS Clearing 
Supplement--the definition of Index Cleared Transaction Confirmation 
will be updated with the date of the amended confirmation as published 
by Markit Group Limited, both for references Markit iTraxx[supreg] 
Europe Index Series 22 or above (a) and Markit CDX^TM Index 
Series 23 or above (b);
    [ssquf] Part B, Section 2.2 (g) and (h) will be added to the 
Supplement--The Index Cleared Transaction Confirmation will be amended 
for NTCE Protocol covered transactions by making the notions of Credit 
Deterioration Requirement and Fallback Discounting applicable, in 
accordance with the Relevant Physical Settlement Matrix and amended 
confirmation as published by Markit Group Limited;
    [ssquf] Part B, Section 2.3 (h) and (i) will be added to the 
Supplement--The Single Name Cleared Transaction Confirmation will be 
amended for NTCE Protocol covered transactions by making the notions of 
Credit Deterioration Requirement and Fallback Discounting applicable, 
in accordance with the Relevant Physical Settlement Matrix and amended 
confirmation as published by Markit Group Limited;
    [ssquf] Part B, Section 2.4 (e) will be added to the Supplement--
The amendments brought by the NTCE Protocol and subsequent NTCE 
Supplement to the 2014 ISDA Credit Derivatives Definitions shall only 
be applicable where the Protocol Effectiveness Condition, as defined in 
the NTCE Protocol, is satisfied;
    [ssquf] Part B, APPENDIX XIII, Section 2.6 will be added to the 
Supplement--

[[Page 67326]]

Mirroring the Part B, Section 2.4 (e) mentioned above, this addition 
ensures that the amendments brought by the NTCE Protocol and subsequent 
NTCE Supplement to the 2014 ISDA Credit Derivatives Definitions shall 
only be applicable to CCM Client Transactions where the Protocol 
Effectiveness Condition, as defined in the NTCE Protocol, is satisfied.
    For Credit Index Swaptions:
    [ssquf] Part C, Section 1.2 Terms defined in the CDS Clearing 
Supplement--the definition of iTraxx[supreg] Europe Untranched 
Transactions Swaption Standard Terms Supplement will be updated with 
the date of the amended iTraxx[supreg] Europe Untranched Transactions 
Swaption Standard Terms Supplement as published by Markit Indices 
Limited;
    [ssquf] Part C, Section 2.2 (f) and (g) will be added to the 
Supplement--The Index Swaption Cleared Transaction Confirmation will be 
amended for NTCE Protocol covered transactions by making the notions of 
Credit Deterioration Requirement and Fallback Discounting applicable, 
in accordance with the Relevant Physical Settlement Matrix;
    [ssquf] Part C, Section 2.3 (b) will be added to the Supplement--
The amendments brought by the NTCE Protocol and subsequent NTCE 
Supplement to the 2014 ISDA Credit Derivatives Definitions shall only 
be applicable where the Protocol Effectiveness Condition, as defined in 
the NTCE Protocol, is satisfied;
    [ssquf] Part C, APPENDIX VIII, Section 1 will be updated with the 
date of the amended iTraxx[supreg] Europe Untranched Transactions 
Swaption Standard Terms Supplement as published by Markit Indices 
Limited;
    [ssquf] Part C, APPENDIX VIII, Section 2.4 will be added to the 
Supplement--Mirroring the Part C, Section 2.3 (b) mentioned above, this 
addition ensures that the amendments brought by the NTCE Protocol and 
subsequent NTCE Supplement to the 2014 ISDA Credit Derivatives 
Definitions shall only be applicable to CCM Client Transactions where 
the Protocol Effectiveness Condition, as defined in the NTCE Protocol, 
is satisfied
(b) Amendments To Harmonize the Use and Definition of Outstanding 
Principal Balance
    LCH has noticed that the term ``Outstanding Principal Balance'' 
appears throughout the Supplement using both small and capitalized 
letters. The entire Supplement will be harmonized in that sense that 
any reference to an Outstanding Principal Balance shall be with 
capitalized letters, so as to refer to the Outstanding Principal 
Balance defined, for Part A of the Supplement, in the ISDA 2003 Credit 
Derivatives Definitions, and for Parts B & C, in the ISDA 2014 Credit 
Derivatives Definitions.
2. Statutory Basis
    LCH SA believes that the proposed rule change in connection with 
the ISDA NTCE Protocol and NTCE Supplement is consistent with the 
requirements of Section 17A of the Securities Exchange Act of 1934 \4\ 
(the ``Act'') and the regulations thereunder, including the standards 
under Rule 17Ad-22 \5\. In particular, Section 17(A)(b)(3)(F)6 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 derivatives agreements, contracts, and 
transactions cleared 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 and the protection of investors and the public 
interest.\6\
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    \4\ 15 U.S.C. 78q-1.
    \5\ 17 CFR 240.17Ad-22.
    \6\ 15 U.S.C. 78q-1(b)(3)(F).
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    Further, Rule 17d-22(e)(1) requires a covered clearing agency to 
provide for a well-founded, clear, transparent and enforceable legal 
basis for each aspect of its activities in all relevant jurisdictions. 
Rule 17d-22(e)(iii) also requires to support the objectives of 
participants.
    The ISDA 2019 NTCE Protocol and Supplement are a wide industry's 
response to the concerns raised by both market participants and 
regulators regarding NTCEs and their potential market on the CDS 
markets.
    ISDA has expressed concern that ``narrowly tailored defaults . . . 
could negatively impact the efficiency, reliability and fairness of the 
overall CDS market.'' Regulators have also expressed concern with 
narrowly tailored or manufactured credit events, including a joint 
statement by the heads of the Commission, the Commodity Futures Trading 
Commission and the UK Financial Conduct Authority that such strategies 
``may adversely affect the integrity, confidence and reputation of the 
credit derivatives markets, as well as markets more generally. These 
opportunistic strategies raise various issues under securities, 
derivatives, conduct and antifraud laws, as well as policy concerns.'' 
\7\
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    \7\ Securities and Exchange Commission, Commodity Futures 
Trading Commission and UK Financial Conduct Authority, Joint 
Statement on Opportunistic Strategies in the Credit Derivatives 
Markets (June 24, 2019); see also Update to June 2019 Joint CFTC-
SEC-FCA Statement on Opportunistic Strategies in the Credit 
Derivatives Market (Sept. 19, 2019).
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    It was understood that the heads of the Commission, the Commodity 
Futures Trading Commission and the UK Financial Conduct Authority have 
stated that they welcome the efforts to implement the amendments set 
out in the NTCE Supplement and NTCE Protocol.\8\
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    \8\ Update to June 2019 Joint CFTC-SEC-FCA Statement on 
Opportunistic Strategies in the Credit Derivatives Markets (Sept. 
19, 2019).
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    So, as all CCPs, LCH SA is expected to modify its rules so that the 
NTCE Supplement's terms will also apply to all cleared CDS transactions 
entered into after the implementation date.
    The LCH SA CDSClear proposed rule change is fully consistent with 
the amendments of the ISDA credit derivatives documentation and 
incorporates changes to the standard terms of CDS Contracts widely 
adopted by market participants.
    For all the reasons above, LCH SA believes that the proposed rule 
change is consistent with the requirements of Section 17A of the 
Securities Exchange Act of 1934 \9\ (the ``Act'') and the regulations 
thereunder, including the standards under Rule 17Ad-22\10\.
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    \9\ 15 U.S.C. 78q-1.
    \10\ 17 CFR 240.17Ad-22.
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B. Clearing Agency's Statement on Burden on Competition
    Section 17A(b)(3)(I) of the Act requires that the rules of a 
clearing agency not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.\11\
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    \11\ 15 U.S.C. 78q-1(b)(3)(I).
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    As mentioned above, the LCH SA CDSClear proposed rule change is 
reflecting the ISDA 2019 NTCE Protocol and Supplement that is an 
industry response and initiative applicable to all CDS market 
participants.
    The proposed rule change would apply equally to all Clearing 
Members and their Clients and would not adversely affect the ability of 
such members or other market participants generally to engage in 
cleared transactions or to access LCH SA's clearing services.
    Therefore, LCH SA does not believe that the proposed rule change 
would impose a burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.

[[Page 67327]]

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-2019-011 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-2019-011. 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/resources/rules-and-regulations/proposed-rule-changes-0. 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-2019-011 and should 
be submitted on or before December 30, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-26408 Filed 12-6-19; 8:45 am]
 BILLING CODE 8011-01-P

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