Self-Regulatory Organizations; LCH SA; Notice of Filing of Proposed Rule Change Relating to the CDSClear Select Membership Model, 21579-21584 [2024-06580]
Download as PDF
<![CDATA[
Federal Register / Vol. 89, No. 61 / Thursday, March 28, 2024 / 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–
NYSEARCA–2024–28 on the subject
line.
[Release No. 34–99847; File No. SR–LCH
SA–2024–002]
Self-Regulatory Organizations; LCH
SA; Notice of Filing of Proposed Rule
Change Relating to the CDSClear
Select Membership Model
March 22, 2024.
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–NYSEARCA–2024–28. 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
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–NYSEARCA–2024–28 and should be
submitted on or before April 18, 2024.
ddrumheller on DSK120RN23PROD with NOTICES1
SECURITIES AND EXCHANGE
COMMISSION
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–06583 Filed 3–27–24; 8:45 am]
BILLING CODE 8011–01–P
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 13,
2024, 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 primarily prepared by LCH
SA. The Commission is publishing this
notice to solicit comments on the
Proposed Rule Change from interested
persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
LCH SA is proposing to amend its
CDS Clearing Rule Book (‘‘Rule Book’’)
and CDS Clearing Procedures
(‘‘Procedures’’) to incorporate new terms
and to make conforming, clarifying and
clean-up changes to implement the new
model of CDSClear select membership
(the ‘‘Proposed Rule Change’’).
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 such statements.
A. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
1. Purpose
In accordance with the current Rule
Book, Select Members can provide
clearing services in respect of credit
default swaps (‘‘CDS’’) and options on
CDS (collectively, the ‘‘CDSClear
Clearing Services’’) to Affiliates only.
LCH SA is proposing to extend the
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
20:27 Mar 27, 2024
Jkt 262001
PO 00000
Frm 00097
Fmt 4703
possibility for Select Members to
provide CDSClear Clearing Services to
any client, including Affiliates (the
‘‘New Select Membership’’) to allow
some prospective clearing members that
wish to provide clearing services to nonaffiliated clients without becoming
General Members. General Members
must participate in Competitive Bidding
for Auction Packages and submit prices
to LCH SA, and thus the New Select
Membership would allow some clearing
members to provide clearing services to
non-affiliated clients even if they do not
have the capacity to participate in
competitive bidding or to submit prices
to LCH SA.
Pursuant to the New Select
Membership, LCH SA is proposing to
remove the requirement for Select
Members to participate in Competitive
Bidding for Auction Packages, including
trades belonging to the Product Families
they have elected to clear with LCH SA.
Indeed, as part of the competitive
auction process applicable in the
context of the default management
process implemented in respect of the
default of a Clearing Member, each nondefaulting Clearing Member is required
to submit bids in respect of any
portfolio of trades reflecting the Cleared
Transactions of the Defaulting Clearing
Member, subject to exceptions provided
for in the Rule Book; among them, a
non-defaulting Clearing Member which
is a Select Member shall submit bids
only in respect of a portfolio of trades
that does not include any trade which
does not belong to the relevant Select
Member’s Products Families, currently
defined as the categories of credit
default swaps (‘‘CDS’’) and options on
CDS in respect of which LCH SA
provides clearing services and that may
be selected by a Select Member in the
relevant form (the ‘‘Product Family
Form’’). Instead, LCH SA is proposing to
add the option for Select Members to
elect to participate in Competitive
Bidding for Auction Packages at their
own discretion, in addition to
participating in the CDS Default
Management Group and CDS Default
Management Committee. Unlike
Clearing Members admitted as General
Members, Select Members will not
benefit from the possibility to subscribe
to the unlimited tariff allowing them to
clear an unlimited number of trades for
their own account for an annual fixed
fee set out in the CDSClear fee grid.3
Pursuant to the New Select
Membership, LCH SA also is proposing
to change the method by which Select
3 The CDSClear fee grid is available on LCH SA’s
website at the following link: https://www.lch.com/
services/cdsclear/fees.
1 15
16 17
21579
Sfmt 4703
E:\FR\FM\28MRN1.SGM
28MRN1
21580
Federal Register / Vol. 89, No. 61 / Thursday, March 28, 2024 / Notices
Members submit prices to LCH SA.
Currently, Select Members shall submit
prices to LCH SA in respect of its open
positions belonging to the Product
Families elected by the relevant Select
Member. Select Members would be able
to choose whether to submit prices
under the New Select Membership in
respect of the relevant Trading Cities
they have selected in the new ‘‘Select
Member Form,’’ as discussed below.
At this time, LCH SA is not proposing
to amend the Risk Management
Framework or its free grid as a result of
providing the New Select Membership.
General Members will continue to have
an unlimited fee tariff option, unlike
Select Members, and General Members
on variable tariff pay will have both
lower fixed fee and lower variable fees
than Select Members. General Members
who clear for clients may also be able
to give their clients the same liquidity
margin as other General Members,
unlike Select Members, who may incur
a higher liquidity margin, including a
liquidity concentration charge, for large
positions, including large client
positions.
In order to implement the Proposed
Rule Change, LCH SA is proposing to
amend the Rule Book and Section 1 and
Section 5 of the Procedures to reflect the
amended terms and conditions of the
New Select Membership model.
Proposed Revisions to the Rule Book
and Procedures
ddrumheller on DSK120RN23PROD with NOTICES1
(i) CDSClear Client Clearing Services
LCH SA is proposing to extend the
possibility for Select Members to
provide CDSClear clearing services to
any client, in addition to Affiliates.
LCH SA is proposing to delete the
defined term, ‘‘Affiliated Firm’’ since it
was used only in respect of the current
Select Member model pursuant to
which a Select Member may provide
client clearing services to Affiliated
Firms, which include their Affiliates
and any entity that is otherwise a
member to the same institutional
protection scheme as the Clearing
Member. Since Select Members will be
permitted to provide clearing services to
any client, regardless of whether it is an
Affiliated Firm, there is no need to keep
such defined term and therefore any
reference to ‘‘Affiliated Firm(s)’’ or to
the provision of client clearing services
to Affiliated Firm(s) is proposed to be
deleted from the definitions of ‘‘CCM’’,
‘‘FCM/BD Clearing Member’’ and
‘‘Select Member’’, as well as from
Article 2.2.1.1(iv) and (v), Article
2.2.2.1(iv), Article 4.2.7.2(ii), and
Article 5.1.1.1. Indent (i) of Articles
5.1.1.2 and 6.1.1.2 of the Rule Book will
VerDate Sep<11>2014
20:27 Mar 27, 2024
Jkt 262001
be also removed since such indent is
currently providing for the condition
pursuant to which a Select Member may
provide client clearing services to an
Affiliated Firm only.
As a result of the removal of the
condition that a Select Member may
provide client clearing services to
Affiliated Firms only, the term
‘‘Affiliated Firm’’ will be revised to
‘‘Affiliate’’ (as that term is defined in the
Rule Book) in the definition of the
following defined terms: ‘‘CCM Indirect
Gross Segregated Account Client’’,
‘‘CCM Indirect Net Segregated Account
Client’’, ‘‘CCM Individual Segregated
Account Client’’ and ‘‘FCM/BD Client’’
and in Article 6.1.1.2.
The definition of ‘‘Select Member’’
would also be revised to clarify that
Select Members may offer CDSClear
Clearing Services to any client,
including Affiliates.
LCH SA is proposing to revise Article
4.2.7.2(ii) by deleting reference to
‘‘General Member’’ and ‘‘Select
Member’’ as well as ‘‘Affiliated Firms’’,
as this distinction would no longer be
relevant with Select Members having
the option to be a Price Contribution
Participant and providing CDS Client
Clearing Services to any client.
(ii) Deletion of Obligation To Participate
in Competitive Bidding
LCH SA is proposing to delete the
defined terms, ‘‘Product Family’’ and
‘‘Product Family Form’’, as these
defined terms are only applicable when
participation in Competitive Bidding is
mandatory for all Select Members in
respect of the Product Families they
have selected in the Product Family
Form. Because of the new options Select
Members will have, there is no longer a
need to use the Product Family Form.
As a result, LCH SA is proposing to
delete any reference to ‘‘Product Family
Form’’ and ‘‘Product Family’’ in Section
1.1.1, Article 2.2.0.4, Article 3.1.6.2(ii),
Article 3.1.6.5, and Clause 5.4.1(ii) and
Clause 6.1 of Appendix 1 (CDS Default
Management Process), and replace these
terms with the new defined term of
‘‘Select Member Form’’ (as further
explained in sub-paragraph (iii) below),
where relevant (e.g., in the definition of
‘‘CDS Clearing Documentation’’).
LCH SA is also proposing to delete
Article 3.1.6.8 related to ‘‘Product
Family Form’’ in its entirety as it is no
longer relevant as a result of the changes
made pursuant to this subparagraph (ii).
Finally, any reference to a General
Member or a Select Member will be
removed from current Clause 6.1.2(ii)(a)
of Appendix 1 (CDS Default
Management Process) because of the
removal of the ‘‘Product Family Form’’.
PO 00000
Frm 00098
Fmt 4703
Sfmt 4703
Specifically, there is no longer a need to
make a distinction between both
memberships for the purposes of the
registration process for the Index
Swaption service in the context of the
transfer of positions resulting from the
auction process.
(iii) Select Member Form
LCH SA is proposing to add a new
defined term, ‘‘Select Member Form’’, in
Section 1.1.1 of the Rule Book, to define
the form by which the Select Member
could make the elections (including the
option to participate in Competitive
Bidding)—as further elaborated in
renumbered Article 2.2.0.4 of the Rule
Book and Section 1 and Section 5 of the
Procedures.
LCH SA is proposing to revise Section
1.1 (Application Procedure), indent (c),
entitled ‘‘CDSClear Application Form’’
in the Procedures to replace the term
‘‘Product Family Form’’, which is no
longer relevant, by the term ‘‘Select
Member Form’’. LCH SA is also
proposing to clarify that the Select
Member Form will be made available by
LCH SA’s CDSClear Business
Development & Relationship
Management team.
This Select Member Form would be
used by Select Members to elect to
participate in Competitive Bidding for
selected Trading Cities. The election to
participate in Competitive Bidding
would have to be received within 1 hour
of the declaration of an Event of Default
by LCH SA—as noted in revised Clause
5.4.1(ii) of Appendix 1 of the Rule Book.
In addition, Clause 5.4.1(ii) of Appendix
1 would provide that the Select Member
would have to comply with the criteria
referenced in Article 2.2.1.1(xi) of the
Rule Book.
LCH SA is proposing to revise
renumbered Article 2.2.0.4 of the Rule
Book to add the possibility for Select
Members to elect to participate in
Competitive Bidding subject to the
conditions set forth in Article 2.2.1.1 of
the Rule Book (Membership
Requirements).
Article 2.2.1.1 of the Rule Book sets
forth the conditions that any Applicant
wishing to be admitted as a Clearing
Member by LCH SA must satisfy. As
such conditions apply to both General
Members and Select Members, LCH SA
is proposing to remove reference to
‘‘Select Member’’ and ‘‘General
Member’’ from Article 2.2.1.1(iv) and (v)
and Article 2.2.2.1(iv) of the Rule Book.
In addition, LCH SA is proposing to
specify in Article 2.2.1.1(xi) that Select
Members wishing to elect to participate
in Competitive Bidding would have to
demonstrate being able to successfully
participate in the implementation of the
E:\FR\FM\28MRN1.SGM
28MRN1
ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 89, No. 61 / Thursday, March 28, 2024 / Notices
CDS Default Management Process and
in regular fire drills run by LCH SA in
accordance with the Rule Book.
Provided that Select Members comply
with the conditions referenced in
Article 2.2.1.1 of the Rule Book, LCH SA
is proposing to revise Article 2.2.0.5
(now renumbered as Article 2.2.0.4) of
the Rule Book to include the possibility
for Select Members to:
(i) be a Price Contribution Participant
in respect of one or more Trading
City(ies); if a Select Member has elected
to be a Price Contribution Participant,
and therefore to receive the Price
Requirements Files in respect of the
relevant Trading Cities, it will be bound
by all obligations of any Price
Contribution Participant as set out in
the Rule Book and Section 5 of the
Procedures. Under current Article
2.2.05, the Select Member has the
possibility to contribute to prices by
submitting Market Data (and therefore to
be a Price Contribution Participant) in
accordance with Section 5 of the
Procedures but is under no obligation to
do so, which would be no longer the
case under the New Select Membership
model; indeed, once a Select Member
will elect to be a Price Contribution
Participant for one or more Trading
Cities, it will be subject to the obligation
to provide the Market Data for the
Trading Cities in respect of which it has
Open Positions;
(ii) participate in Competitive Bidding
as further detailed in Clause 5 of the
CDS Default Management Process,
subject to Article 2.2.1.1(xi); it will be
also clarified that a Select Member
which has elected to participate in
Competitive Bidding will be subject to
the provisions of the clearing rules
which apply to any non-defaulting
Clearing Member which is required to
participate in Competitive Bidding for
each Auction Package;
(iii) nominate DMG Representatives in
accordance with Clause 11.2.2 of the
CDS Default Management Process,
whereas, in accordance with the current
version of Clause 11.2.2 of the CDS
Default Management Process, each
Clearing Member, including any Select
Member, shall nominate DMG
Representatives. Since the participation
to the Competitive Bidding process will
be no longer required in respect of
Product Families for a Select Member,
the obligation to participate in the CDS
Default Management Group will become
optional for consistency purposes. LCH
SA would expect that Select Members
that have elected to participate in
Competitive Bidding will be interested
in participating in the CDS Default
Management Group and therefore
VerDate Sep<11>2014
20:27 Mar 27, 2024
Jkt 262001
nominate DMG Representatives for that
purpose; and/or
(iv) nominate representatives to be
appointed as members of the CDS
Default Management Committee in
accordance with Clause 10.2 of the CDS
Default Management Process. Similarly
to the nomination of DMG
Representatives as described in previous
indent (iii), each Clearing Member,
including any Select Member, shall
nominate representatives to be
appointed as members of the CDS
Default Management Committee in
accordance with current Clause 10.2 of
the CDS Default Management Process
and for the same reasons, this will
become only an option for the Select
Member which might be interested in
participating in the CDS Default
Management Committee if they were to
select the possibility to participate in
Competitive Bidding.
Since a Select Member will need to
make the above listed elections under
the New Select Membership model, the
possibility to change its election in
respect of its contribution to prices as
currently provided for in Article 2.2.0.5
has been extended to all the new
elections to be made as well; hence, the
Select Member will be able to change
any of its elections by providing LCH
SA with a copy of a duly signed
updated Select Member Form, in
accordance with the conditions set out
in Section 5 of the Procedures pursuant
to the revised Article 2.2.0.5 (now
renumbered as Article 2.2.0.4).
In addition, LCH SA is proposing to
revise the definition of ‘‘Price
Contribution Participant’’ in Section
1.1.1 of the Rule Book to clarify that it
includes Select Members that have
opted for submitting Market Data in
accordance with Article 2.2.0.4, rather
than Section 5 of the Procedures.
In addition, LCH SA is proposing to
revise Section 5.18.1 (Market Data
submission) of the Procedures to delete
a paragraph that notes that a Select
Member may decide to receive or stop
receiving Price Requirement Files and
provides instructions for how a such
Select Member can choose to receive or
stop receiving Price Requirement Files.
Indeed, the election to be a Price
Contribution Participant will be made
by the Select Member by using the new
Select Member Form and this election
can be updated by updating such form
in the conditions set out in amended
paragraph (c) of Section 5.11 of the
Procedures.
Furthermore, Clauses 10.2.1 and
11.2.2 of Appendix 1 (CDS Default
Management Process) would be revised
to include representatives nominated by
Select Members to the CDS Default
PO 00000
Frm 00099
Fmt 4703
Sfmt 4703
21581
Management Group and CDS Default
Management Committee since the Select
Members will be permitted to opt for the
possibility to participate in the CDS
Default Management Group and/or the
CDS Default Management Committee in
accordance with amended Article
2.2.0.4 (currently Article 2.2.0.5) as
further explained in page 11 above.
LCH SA is also proposing to amend
indent (d) entitled ‘‘Due diligence and
review process’’ of Section 1.1
(Application Procedure) of the
Procedures to include the obligation for
Select Members to successful carry out
tests as referenced in Article 2.2.1.1 (xi)
of the Rule Book.
Finally, LCH SA is proposing to revise
Section 5.11(c) (Update of the Select
Member Form) of the Procedures to also
specify that the Select Member, having
elected to participate in Competitive
Bidding, will be required to participate
in Competitive Bidding for each
Auction Package.
(iv) Updated Select Member Form
LCH SA is proposing to revise Article
2.2.0.5 to enable Select Members to elect
to opt out of Competitive Bidding and
all other elections in sub-paragraphs (i)
to (iv) of Article 2.2.0.5, under
conditions set forth in Section 5 of the
Procedures as this is currently the case
but in respect of the contribution to
prices only. The Select Member Form
will allow the Select Member to notify
its elections to LCH SA and also to
update it should it wish to change any
of its elections, in accordance with the
amended provisions of Section 5.11 of
the Procedures, as further described
below.
LCH SA would revise Section 5.11(c),
‘‘Update of the Select Member Form’’,
(formerly, ‘‘Update of the Product
Family Form’’) of the Procedures to
cover the update process of the Select
Member Form, as the Product Family
Form, and any reference thereto, is no
longer relevant. Any update to the
Select Member Form may be subject to
passing requisite tests prescribed by
LCH SA and if the update pertains to
the Select Member no longer
participating in the Competitive Bidding
Process, such update will be effective on
the eighth Clearing Day following the
Clearing Day on which the updated
Select Member Form is received, in
order to ensure that the Select Member
will still be required to participate in
Competitive Bidding if an Event of
Default is declared in respect of another
Clearing Member at the same time the
updated Select Member Form of such
Select Member is received by LCH SA.
LCH SA is also proposing to specify
that Select Members should be able to
E:\FR\FM\28MRN1.SGM
28MRN1
21582
Federal Register / Vol. 89, No. 61 / Thursday, March 28, 2024 / Notices
change any of its election(s) via
provision of an updated Select Member
Form to the CDSClear Business
Development & Relationship
Management team via email.
(v) Additional Amendments
LCH SA also proposes to make other
revisions to the Rule Book and Section
1 and Section 5 of the Procedures to
correct certain cross-references,
grammar and/or typographical errors,
and to provide additional clarification.
For example, Article 1.2.2.4 of the Rule
Book will be amended to clarify that the
reference to ‘‘days’’ means ‘‘calendar
days’’ for the avoidance of doubt.
2. Statutory Basis
LCH SA believes the Proposed Rule
Change is consistent with the
requirements of the Act and the rules
and regulations thereunder applicable to
registered clearing agencies, including
with section 17A(b)(3)(B) 4 and section
17A(b)(3)(F) of the Act.5 section
17A(b)(3)(B) of the Act requires, inter
alia, that the rules of a clearing agency
provide that any registered broker or
dealer, bank or other person or class of
persons may become a participant in
such clearing agency.6 Section
17A(b)(3)(F) of the Act requires, inter
alia, that a clearing agency’s rules are
designed to promote the prompt and
accurate clearance and settlement of
securities transactions, to assure the
safeguarding of securities and funds in
the custody or control of LCH SA, and
are not designed to permit the unfair
discrimination in the admission of
participants or among participants in
the use of the clearing agency.7
Per LCH SA’s current CDSClear Rule
Book, a Clearing Member may either be
designated as a General Member or a
Select Member.8 A General Member is
either a CCM 9 or an FCM/BD Clearing
Member 10 that has been admitted by
4 15
5 15
U.S.C. 78q–1(b)(3)(B).
U.S.C. 78q–1(b)(3)(F).
6 Id.
ddrumheller on DSK120RN23PROD with NOTICES1
7 Id.
8 See Section 1.1.1. (‘‘Terms defined in the CDS
Clearing Rule Book’’) of the CDSClear Rule Book.
https://www.lch.com/system/files/media_root/
CDSClear_Rule_Book_26.09.2023.pdf.
9 A ‘‘CCM’’ is defined in the current CDS Clearing
Rule Book as any legal entity admitted as a clearing
member in accordance with the CDS Clearing Rules
and party to the CDS Admission Agreement,
provided that if such entity wishes to provide CDS
CCM Client Clearing Services described in TITLE V,
it shall either (i) be a General Member or (ii)
provide such CDS CCM Client Clearing Services to
its Affiliated Firms only. If such entity is an FCM/
BD, it must satisfy LCH SA that it is able to provide
the CDS Client Clearing Services in accordance
with Title V prior to offering such services.
10 A ‘‘FCM/BD Clearing Member’’ is defined in
the current CDS Clearing Rule Book as any FCM,
BD or a legal entity that is both FCM and BD that
VerDate Sep<11>2014
20:27 Mar 27, 2024
Jkt 262001
LCH SA as a General Member in
accordance with Section 1 of the
Procedures.11 A Select Member is either
a CCM or an FCM/BD Clearing Member
that: (a) does not provide CDS Client
Clearing Services to Clients other than
Affiliated Firms; and (b) has been
admitted by LCH SA as a Select Member
in accordance with Section 1 of the
Procedures.12 LCH SA is proposing to
amend the definition of a Select
Member to allow Select Members to
offer client clearing to any client,
including Affiliates. In doing so, LCH
SA is proposing to remove the
obligation that Select Members
participate in Competitive Bidding for
Auction Packages including trades
belonging to the Product Families they
actively trade. Instead, Select Members
would have the ability to elect to
participate in Competitive Bidding for
Auction Packages at their own
discretion. Furthermore, Select
Members may elect to contribute end of
day prices and participate in the Default
Management Process and Default
Management Committee. This will
enhance LCH SA’s ability to contain
losses and manage a clearing member
default. Select Members would also be
incentivized to become General
Members for purposes of participating
in default auctions as their client
clearing activity grows. By expanding its
membership for Select Members to
include any client, including Affiliates
and thus expand participation in
clearing, LCH SA believes such changes
are consistent with section
17A(b)(3)(B) 13 and section
17A(b)(3)(F) 14 of the Act such that its
rules are designed to promote the
prompt and accurate clearance and
settlement of securities transactions, to
assure the safeguarding of securities and
funds in the custody or control of LCH
SA, and are not designed to permit the
unfair discrimination in the admission
of participants or among participants in
the use of the clearing agency.
LCH SA also believes the Proposed
Rule Change is consistent with Rule
17Ad–22(e)(1) of the Act which
requires, inter alia, that a covered
has been admitted as a clearing member in
accordance with the CDS Clearing Rules and is a
party to the CDS Admission Agreement and which
has not elected to become a CCM, provided that if
such FCM/BD Clearing Member wishes to provide
CDS Client Clearing Services described in TITLE VI,
it shall either (i) be a General Member or (ii)
provide such CDS Client Clearing Services to its
Affiliated Firms only.
11 See Section 1 (‘‘Membership’’) of the CDS
Clearing Procedures. CDSClear_Section_1_
Procedures__18.07.2019.pdf (lch.com).
12 Id.
13 15 U.S.C. 78q–1(b)(3)(B).
14 15 U.S.C. 78q–1(b)(3)(F).
PO 00000
Frm 00100
Fmt 4703
Sfmt 4703
clearing agency establish, implement,
maintain and enforce written policies
and procedures reasonably designed to
provide for a well-founded, clear,
transparent, and enforceable legal basis
for each aspect of its activities in all
relevant jurisdictions.15 LCH SA
believes the changes to its Rule Book
and Procedures are clear,
understandable, and consistent with the
relevant laws and regulations applicable
to LCH SA. In addition, LCH SA
believes changes to the Rule Book and
Procedures regarding the extension of
the possibility for Select Members to
provide CDSClear clearing services to
any client, including Affiliates and
publishing such changes on its public
website provides greater transparency to
Clearing Members and their customers,
and to the general public. Therefore,
LCH SA believes that the Proposed Rule
Change is consistent with Rule 17Ad–
22(e)(1).16
LCH SA also believes that the
Proposed Rule Change is consistent
with Rule 17Ad–22(e)(13) 17 of the Act
which requires, inter alia, that a covered
clearing agency establish, implement,
maintain and enforce written policies
and procedures reasonably designed to
ensure the covered clearing agency has
the authority and operational capacity
to take timely action to contain losses
and liquidity demands and continue to
meet its obligations.18 Select Members
were previously required to bid during
default management auctions if the
auction package contained products in
the product family they subscribed to,
regardless of whether the Select Member
actively traded the product. The
requirement to participate in such
default auctions presents challenges for
certain Select Members that don’t
actively trade in the products being
auctioned, and thus may serve as an
obstacle to clearing agency membership.
Select Members also may not have the
operational capacity to participate in
default auctions as General Members.
This is evidenced by LCH SA’s
experience facilitating fire drill
exercises requiring participation by
Select Members.19 LCH SA’s proposed
changes to the mandatory obligation to
bid in default auctions for Select
Members will address this issue.
Furthermore, LCH SA believes the
existing pool of General Members
required to bid, in addition to the Select
15 17
CFR 240.17Ad–22(e)(1).
16 Id.
17 17
CFR 240.17Ad–22(e)(13).
18 Id.
19 For example, Select Members have historically
required assistance managing default files and have
routinely requested assistance addressing questions
during fire drill exercises.
E:\FR\FM\28MRN1.SGM
28MRN1
Federal Register / Vol. 89, No. 61 / Thursday, March 28, 2024 / Notices
ddrumheller on DSK120RN23PROD with NOTICES1
Members that opt in to bidding on
default auction portfolios provides
sufficient participation for purposes of
ensuring LCH SA can take timely action
to contain losses and liquidity demands
and continue to meet its obligations.
Therefore, LCH SA believes that the
Proposed Rule Change is consistent
with Rule 17Ad–22(e)(13).20
Finally, LCH SA believes that the
Proposed Rule Change is consistent
with Rule 17Ad–22(e)(18) 21 under the
Act. Rule 17Ad–22(e)(18) under the Act
requires, inter alia, that a covered
clearing agency establish, implement,
maintain and enforce written policies
and procedures reasonably designed to
establish objective, risk-based, and
publicly disclosed criteria for
participation, which permit fair and
open access by direct and, where
relevant, indirect participants and other
financial market utilities, 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.22 LCH SA is proposing to
expand its membership criteria for
Select Members by allowing Select
Members to clear for any clients,
including Affiliates. LCH SA is
proposing to remove the obligation that
Select Members participate in
Competitive Bidding for Auction
Packages including trades belonging to
the Product Families they actively trade.
Instead, Select Members would have the
ability to elect to participate in
Competitive Bidding for Auction
Packages at their own discretion. LCH
SA believes this proposed change more
accurately captures the risk profile of
Select Members as it pertains to their
size and operational capabilities.
Specifically, Select Members are
typically non-CDS market-making banks
(price takers) and thus, smaller Clearing
Members. In addition, Select Members
may not have the operational capacity to
bid on products they don’t actively
trade during a default management
auction. As such, LCH SA believes that
the Proposed Rule Change is consistent
with Rule 17Ad–22(e)(18) under 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 not impose any burden on
20 17
21 17
CFR 240.17Ad–22(e)(13).
CFR 240.17Ad–22(e)(18).
competition not necessary or
appropriate in furtherance of the
purposes of the Act.24
LCH SA does not believe the
Proposed Rule Change would impose
burdens on competition that are not
necessary or appropriate in furtherance
of the purposes of the Act. Specifically,
the Proposed Rule Change will
contribute to offer access to clearing
services to any client of Select Members
expanding the client clearing activity.
The Proposed Rule Change will also
remove the burden of Select Members
from having the obligation to bid on
products they don’t actively trade in
default management auctions. LCH SA
further believes the Proposed Rule
Change is equitable for both General
Members and Select Members, as
clearing members will continue to have
discretion in electing to be either
General Members or Select Members
under the new membership model.
Furthermore, existing General Members
will not be prevented from switching to
become Select Members under the
Proposed Rule Change. The increased
access to clearing services under the
Proposed Rule Change may result in
increased liquidity in the service as
membership grows. Therefore, LCH SA
does not believe that the Proposed Rule
Change would impose burdens on
competition that are not necessary or
appropriate in furtherance of the
purposes of the Act.
C. Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received From Members,
Participants or Others
Written comments relating to the
Proposed Rule Change have not been
solicited or received. LCH SA will
notify the Commission of any written
comments received by LCH SA.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will: (A) by
order approve or disapprove such
proposed rule change, or (B) institute
proceedings to determine whether the
proposed rule change should be
disapproved.
22 Id.
23 Id.
VerDate Sep<11>2014
24 15
20:27 Mar 27, 2024
Jkt 262001
PO 00000
U.S.C. 78q–1(b)(3)(I).
Frm 00101
Fmt 4703
Sfmt 4703
21583
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–2024–002 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Vanessa A. Countryman, Secretary,
Securities and Exchange Commission,
100 F Street NE, Washington, DC
20549–1090.
All submissions should refer to file
number SR–LCH SA–2024–002. 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
a.m. and 3 p.m. Copies of such filings
will also be available for inspection and
copying at the principal office of LCH
SA and on LCH SA’s website at https://
www.lch.com/resources/rules-andregulations/proposed-rule-changes-0.
Do not include personal identifiable
information in submissions; you should
submit only information that you wish
to make available publicly. We may
redact in part or withhold entirely from
publication submitted material that is
obscene or subject to copyright
protection. All submissions should refer
to file number SR–LCH SA–2024–002
and should be submitted on or before
April 18, 2024.
E:\FR\FM\28MRN1.SGM
28MRN1
21584
Federal Register / Vol. 89, No. 61 / Thursday, March 28, 2024 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.45
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–06580 Filed 3–27–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
35162; File No. 812–15473]
Oaktree Fund Advisors, LLC and
Oaktree Diversified Income Fund Inc.
March 22, 2024
Securities and Exchange
Commission (‘‘Commission’’ or ‘‘SEC’’).
ACTION: Notice.
ddrumheller on DSK120RN23PROD with NOTICES1
AGENCY:
Notice of application for an order
under sections 6(c) and 23(c)(3) of the
Investment Company Act of 1940 (the
‘‘Act’’) for an exemption from rule 23c–
3 under the Act.
Summary of Application: Applicants
request an order under sections 6(c) and
23(c)(3) of the Act for an exemption
from certain provisions of rule 23c–3 to
permit certain registered closed-end
investment companies to make
repurchase offers on a monthly basis.
Applicants: Oaktree Fund Advisors,
LLC and Oaktree Diversified Income
Fund Inc.
Filing Dates: The application was
filed on June 2, 2023, and amended on
December 28, 2023.
Hearing or Notification of Hearing: An
order granting the requested relief will
be issued unless the Commission orders
a hearing. Interested persons may
request a hearing on any application by
emailing the SEC’s Secretary at
Secretarys-Office@sec.gov and serving
the Applicants with a copy of the
request by email, if an email address is
listed for the relevant Applicant below,
or personally or by mail, if a physical
address is listed for the relevant
Applicant below. Hearing requests
should be received by the Commission
by 5:30 p.m. on April 16, 2024, and
should be accompanied by proof of
service on the Applicants, in the form
of an affidavit, or, for lawyers, a
certificate of service. Pursuant to rule 0–
5 under the Act, hearing requests should
state the nature of the writer’s interest,
any facts bearing upon the desirability
of a hearing on the matter, the reason for
the request, and the issues contested.
Persons who wish to be notified of a
hearing may request notification by
emailing the Commission’s Secretary.
The Commission:
Secretarys-Office@sec.gov. Applicants:
Brian F. Hurley, Esq., Oaktree
Diversified Income Fund Inc.,
Brookfield Place, 250 Vesey Street, 15th
Floor, New York, NY 10281–1023, with
copies to Michael R. Rosella, Esq. and
Thomas D. Peeney, Esq., Paul Hastings
LLP, 200 Park Avenue, New York, NY
10166.
FOR FURTHER INFORMATION CONTACT:
Kieran G. Brown, Senior Counsel, or
Terri Jordan, Branch Chief, at (202) 551–
6825 (Division of Investment
Management, Chief Counsel’s Office).
SUPPLEMENTARY INFORMATION: For
Applicants’ representations, legal
analysis, and conditions, please refer to
Applicants’ first amended and restated
application, dated December 28, 2023,
which may be obtained via the
Commission’s website by searching for
the file number at the top of this
document, or for an Applicant using the
Company name search field on the
SEC’s EDGAR system. The SEC’s
EDGAR system may be searched at
https://www.sec.gov/edgar/searchedgar/
legacy/companysearch.html. You may
also call the SEC’s Public Reference
Room at (202) 551–8090.
ADDRESSES:
For the Commission, by the Division of
Investment Management, under delegated
authority.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–06540 Filed 3–27–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–99842; File No. SR–
NYSEARCA–2023–63]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Designation of a
Longer Period for Commission Action
on Proceedings To Determine Whether
To Approve or Disapprove a Proposed
Rule Change To List and Trade Shares
of the Grayscale Ethereum Futures
Trust (ETH) ETF Under NYSE Arca
Rule 8.200–E, Commentary .02 (Trust
Issued Receipts)
March 22, 2024.
On September 19, 2023, NYSE Arca,
Inc. (‘‘NYSE Arca’’ or ‘‘Exchange’’) 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 to list and trade shares
1 15
45 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
20:27 Mar 27, 2024
2 17
Jkt 262001
PO 00000
U.S.C. 78s(b)(1).
CFR 240.19b–4.
Frm 00102
Fmt 4703
Sfmt 4703
(‘‘Shares’’) of the Grayscale Ethereum
Futures Trust (ETH) ETF (‘‘Trust’’)
under NYSE Arca Rule 8.200–E,
Commentary .02 (Trust Issued Receipts).
The proposed rule change was
published for comment in the Federal
Register on October 3, 2023.3
On November 15, 2023, pursuant to
section 19(b)(2) of the Act,4 the
Commission designated a longer period
within which to approve the proposed
rule change, disapprove the proposed
rule change, or institute proceedings to
determine whether to disapprove the
proposed rule change.5 On December
18, 2023, the Commission instituted
proceedings under section 19(b)(2)(B) of
the Act 6 to determine whether to
approve or disapprove the proposed
rule change.7
Section 19(b)(2) of the Act 8 provides
that, after initiating proceedings, the
Commission shall issue an order
approving or disapproving the proposed
rule change not later than 180 days after
the date of publication of notice of filing
of the proposed rule change. The
Commission may extend the period for
issuing an order approving or
disapproving the proposed rule change,
however, by not more than 60 days if
the Commission determines that a
longer period is appropriate and
publishes the reasons for such
determination. The proposed rule
change was published for comment in
the Federal Register on October 3,
2023.9 The 180th day after publication
of the proposed rule change is March
31, 2024. The Commission is extending
the time period for approving or
disapproving the proposed rule change
for an additional 60 days.
The Commission finds that it is
appropriate to designate a longer period
within which to issue an order
approving or disapproving the proposed
rule change so that it has sufficient time
to consider the proposed rule change
and the issues raised therein.
Accordingly, the Commission, pursuant
to section 19(b)(2) of the Act,10
designates May 30, 2024, as the date by
which the Commission shall either
approve or disapprove the proposed
3 See Securities Exchange Act Release No. 98567
(Sept. 27, 2023), 88 FR 68171. Comments on the
proposed rule change are available at: https://
www.sec.gov/comments/sr-nysearca-2023-63/srny
searca202363.htm.
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 98944,
88 FR 81171 (Nov. 21, 2023).
6 15 U.S.C. 78s(b)(2)(B).
7 See Securities Exchange Act Release No. 99198,
88 FR 88694 (Dec. 22, 2023).
8 15 U.S.C. 78s(b)(2).
9 See supra note 3 and accompanying text.
10 15 U.S.C. 78s(b)(2).
E:\FR\FM\28MRN1.SGM
28MRN1
]]>Agencies
[Federal Register Volume 89, Number 61 (Thursday, March 28, 2024)]
[Notices]
[Pages 21579-21584]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-06580]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99847; File No. SR-LCH SA-2024-002]
Self-Regulatory Organizations; LCH SA; Notice of Filing of
Proposed Rule Change Relating to the CDSClear Select Membership Model
March 22, 2024.
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 13, 2024, 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 primarily
prepared by LCH SA. The Commission is publishing this notice to solicit
comments on the Proposed Rule Change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
LCH SA is proposing to amend its CDS Clearing Rule Book (``Rule
Book'') and CDS Clearing Procedures (``Procedures'') to incorporate new
terms and to make conforming, clarifying and clean-up changes to
implement the new model of CDSClear select membership (the ``Proposed
Rule Change'').
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 such statements.
A. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
1. Purpose
In accordance with the current Rule Book, Select Members can
provide clearing services in respect of credit default swaps (``CDS'')
and options on CDS (collectively, the ``CDSClear Clearing Services'')
to Affiliates only. LCH SA is proposing to extend the possibility for
Select Members to provide CDSClear Clearing Services to any client,
including Affiliates (the ``New Select Membership'') to allow some
prospective clearing members that wish to provide clearing services to
non-affiliated clients without becoming General Members. General
Members must participate in Competitive Bidding for Auction Packages
and submit prices to LCH SA, and thus the New Select Membership would
allow some clearing members to provide clearing services to non-
affiliated clients even if they do not have the capacity to participate
in competitive bidding or to submit prices to LCH SA.
Pursuant to the New Select Membership, LCH SA is proposing to
remove the requirement for Select Members to participate in Competitive
Bidding for Auction Packages, including trades belonging to the Product
Families they have elected to clear with LCH SA. Indeed, as part of the
competitive auction process applicable in the context of the default
management process implemented in respect of the default of a Clearing
Member, each non-defaulting Clearing Member is required to submit bids
in respect of any portfolio of trades reflecting the Cleared
Transactions of the Defaulting Clearing Member, subject to exceptions
provided for in the Rule Book; among them, a non-defaulting Clearing
Member which is a Select Member shall submit bids only in respect of a
portfolio of trades that does not include any trade which does not
belong to the relevant Select Member's Products Families, currently
defined as the categories of credit default swaps (``CDS'') and options
on CDS in respect of which LCH SA provides clearing services and that
may be selected by a Select Member in the relevant form (the ``Product
Family Form''). Instead, LCH SA is proposing to add the option for
Select Members to elect to participate in Competitive Bidding for
Auction Packages at their own discretion, in addition to participating
in the CDS Default Management Group and CDS Default Management
Committee. Unlike Clearing Members admitted as General Members, Select
Members will not benefit from the possibility to subscribe to the
unlimited tariff allowing them to clear an unlimited number of trades
for their own account for an annual fixed fee set out in the CDSClear
fee grid.\3\
---------------------------------------------------------------------------
\3\ The CDSClear fee grid is available on LCH SA's website at
the following link: https://www.lch.com/services/cdsclear/fees.
---------------------------------------------------------------------------
Pursuant to the New Select Membership, LCH SA also is proposing to
change the method by which Select
[[Page 21580]]
Members submit prices to LCH SA. Currently, Select Members shall submit
prices to LCH SA in respect of its open positions belonging to the
Product Families elected by the relevant Select Member. Select Members
would be able to choose whether to submit prices under the New Select
Membership in respect of the relevant Trading Cities they have selected
in the new ``Select Member Form,'' as discussed below.
At this time, LCH SA is not proposing to amend the Risk Management
Framework or its free grid as a result of providing the New Select
Membership. General Members will continue to have an unlimited fee
tariff option, unlike Select Members, and General Members on variable
tariff pay will have both lower fixed fee and lower variable fees than
Select Members. General Members who clear for clients may also be able
to give their clients the same liquidity margin as other General
Members, unlike Select Members, who may incur a higher liquidity
margin, including a liquidity concentration charge, for large
positions, including large client positions.
In order to implement the Proposed Rule Change, LCH SA is proposing
to amend the Rule Book and Section 1 and Section 5 of the Procedures to
reflect the amended terms and conditions of the New Select Membership
model.
Proposed Revisions to the Rule Book and Procedures
(i) CDSClear Client Clearing Services
LCH SA is proposing to extend the possibility for Select Members to
provide CDSClear clearing services to any client, in addition to
Affiliates.
LCH SA is proposing to delete the defined term, ``Affiliated Firm''
since it was used only in respect of the current Select Member model
pursuant to which a Select Member may provide client clearing services
to Affiliated Firms, which include their Affiliates and any entity that
is otherwise a member to the same institutional protection scheme as
the Clearing Member. Since Select Members will be permitted to provide
clearing services to any client, regardless of whether it is an
Affiliated Firm, there is no need to keep such defined term and
therefore any reference to ``Affiliated Firm(s)'' or to the provision
of client clearing services to Affiliated Firm(s) is proposed to be
deleted from the definitions of ``CCM'', ``FCM/BD Clearing Member'' and
``Select Member'', as well as from Article 2.2.1.1(iv) and (v), Article
2.2.2.1(iv), Article 4.2.7.2(ii), and Article 5.1.1.1. Indent (i) of
Articles 5.1.1.2 and 6.1.1.2 of the Rule Book will be also removed
since such indent is currently providing for the condition pursuant to
which a Select Member may provide client clearing services to an
Affiliated Firm only.
As a result of the removal of the condition that a Select Member
may provide client clearing services to Affiliated Firms only, the term
``Affiliated Firm'' will be revised to ``Affiliate'' (as that term is
defined in the Rule Book) in the definition of the following defined
terms: ``CCM Indirect Gross Segregated Account Client'', ``CCM Indirect
Net Segregated Account Client'', ``CCM Individual Segregated Account
Client'' and ``FCM/BD Client'' and in Article 6.1.1.2.
The definition of ``Select Member'' would also be revised to
clarify that Select Members may offer CDSClear Clearing Services to any
client, including Affiliates.
LCH SA is proposing to revise Article 4.2.7.2(ii) by deleting
reference to ``General Member'' and ``Select Member'' as well as
``Affiliated Firms'', as this distinction would no longer be relevant
with Select Members having the option to be a Price Contribution
Participant and providing CDS Client Clearing Services to any client.
(ii) Deletion of Obligation To Participate in Competitive Bidding
LCH SA is proposing to delete the defined terms, ``Product Family''
and ``Product Family Form'', as these defined terms are only applicable
when participation in Competitive Bidding is mandatory for all Select
Members in respect of the Product Families they have selected in the
Product Family Form. Because of the new options Select Members will
have, there is no longer a need to use the Product Family Form.
As a result, LCH SA is proposing to delete any reference to
``Product Family Form'' and ``Product Family'' in Section 1.1.1,
Article 2.2.0.4, Article 3.1.6.2(ii), Article 3.1.6.5, and Clause
5.4.1(ii) and Clause 6.1 of Appendix 1 (CDS Default Management
Process), and replace these terms with the new defined term of ``Select
Member Form'' (as further explained in sub-paragraph (iii) below),
where relevant (e.g., in the definition of ``CDS Clearing
Documentation'').
LCH SA is also proposing to delete Article 3.1.6.8 related to
``Product Family Form'' in its entirety as it is no longer relevant as
a result of the changes made pursuant to this subparagraph (ii).
Finally, any reference to a General Member or a Select Member will
be removed from current Clause 6.1.2(ii)(a) of Appendix 1 (CDS Default
Management Process) because of the removal of the ``Product Family
Form''. Specifically, there is no longer a need to make a distinction
between both memberships for the purposes of the registration process
for the Index Swaption service in the context of the transfer of
positions resulting from the auction process.
(iii) Select Member Form
LCH SA is proposing to add a new defined term, ``Select Member
Form'', in Section 1.1.1 of the Rule Book, to define the form by which
the Select Member could make the elections (including the option to
participate in Competitive Bidding)--as further elaborated in
renumbered Article 2.2.0.4 of the Rule Book and Section 1 and Section 5
of the Procedures.
LCH SA is proposing to revise Section 1.1 (Application Procedure),
indent (c), entitled ``CDSClear Application Form'' in the Procedures to
replace the term ``Product Family Form'', which is no longer relevant,
by the term ``Select Member Form''. LCH SA is also proposing to clarify
that the Select Member Form will be made available by LCH SA's CDSClear
Business Development & Relationship Management team.
This Select Member Form would be used by Select Members to elect to
participate in Competitive Bidding for selected Trading Cities. The
election to participate in Competitive Bidding would have to be
received within 1 hour of the declaration of an Event of Default by LCH
SA--as noted in revised Clause 5.4.1(ii) of Appendix 1 of the Rule
Book. In addition, Clause 5.4.1(ii) of Appendix 1 would provide that
the Select Member would have to comply with the criteria referenced in
Article 2.2.1.1(xi) of the Rule Book.
LCH SA is proposing to revise renumbered Article 2.2.0.4 of the
Rule Book to add the possibility for Select Members to elect to
participate in Competitive Bidding subject to the conditions set forth
in Article 2.2.1.1 of the Rule Book (Membership Requirements).
Article 2.2.1.1 of the Rule Book sets forth the conditions that any
Applicant wishing to be admitted as a Clearing Member by LCH SA must
satisfy. As such conditions apply to both General Members and Select
Members, LCH SA is proposing to remove reference to ``Select Member''
and ``General Member'' from Article 2.2.1.1(iv) and (v) and Article
2.2.2.1(iv) of the Rule Book. In addition, LCH SA is proposing to
specify in Article 2.2.1.1(xi) that Select Members wishing to elect to
participate in Competitive Bidding would have to demonstrate being able
to successfully participate in the implementation of the
[[Page 21581]]
CDS Default Management Process and in regular fire drills run by LCH SA
in accordance with the Rule Book.
Provided that Select Members comply with the conditions referenced
in Article 2.2.1.1 of the Rule Book, LCH SA is proposing to revise
Article 2.2.0.5 (now renumbered as Article 2.2.0.4) of the Rule Book to
include the possibility for Select Members to:
(i) be a Price Contribution Participant in respect of one or more
Trading City(ies); if a Select Member has elected to be a Price
Contribution Participant, and therefore to receive the Price
Requirements Files in respect of the relevant Trading Cities, it will
be bound by all obligations of any Price Contribution Participant as
set out in the Rule Book and Section 5 of the Procedures. Under current
Article 2.2.05, the Select Member has the possibility to contribute to
prices by submitting Market Data (and therefore to be a Price
Contribution Participant) in accordance with Section 5 of the
Procedures but is under no obligation to do so, which would be no
longer the case under the New Select Membership model; indeed, once a
Select Member will elect to be a Price Contribution Participant for one
or more Trading Cities, it will be subject to the obligation to provide
the Market Data for the Trading Cities in respect of which it has Open
Positions;
(ii) participate in Competitive Bidding as further detailed in
Clause 5 of the CDS Default Management Process, subject to Article
2.2.1.1(xi); it will be also clarified that a Select Member which has
elected to participate in Competitive Bidding will be subject to the
provisions of the clearing rules which apply to any non-defaulting
Clearing Member which is required to participate in Competitive Bidding
for each Auction Package;
(iii) nominate DMG Representatives in accordance with Clause 11.2.2
of the CDS Default Management Process, whereas, in accordance with the
current version of Clause 11.2.2 of the CDS Default Management Process,
each Clearing Member, including any Select Member, shall nominate DMG
Representatives. Since the participation to the Competitive Bidding
process will be no longer required in respect of Product Families for a
Select Member, the obligation to participate in the CDS Default
Management Group will become optional for consistency purposes. LCH SA
would expect that Select Members that have elected to participate in
Competitive Bidding will be interested in participating in the CDS
Default Management Group and therefore nominate DMG Representatives for
that purpose; and/or
(iv) nominate representatives to be appointed as members of the CDS
Default Management Committee in accordance with Clause 10.2 of the CDS
Default Management Process. Similarly to the nomination of DMG
Representatives as described in previous indent (iii), each Clearing
Member, including any Select Member, shall nominate representatives to
be appointed as members of the CDS Default Management Committee in
accordance with current Clause 10.2 of the CDS Default Management
Process and for the same reasons, this will become only an option for
the Select Member which might be interested in participating in the CDS
Default Management Committee if they were to select the possibility to
participate in Competitive Bidding.
Since a Select Member will need to make the above listed elections
under the New Select Membership model, the possibility to change its
election in respect of its contribution to prices as currently provided
for in Article 2.2.0.5 has been extended to all the new elections to be
made as well; hence, the Select Member will be able to change any of
its elections by providing LCH SA with a copy of a duly signed updated
Select Member Form, in accordance with the conditions set out in
Section 5 of the Procedures pursuant to the revised Article 2.2.0.5
(now renumbered as Article 2.2.0.4).
In addition, LCH SA is proposing to revise the definition of
``Price Contribution Participant'' in Section 1.1.1 of the Rule Book to
clarify that it includes Select Members that have opted for submitting
Market Data in accordance with Article 2.2.0.4, rather than Section 5
of the Procedures.
In addition, LCH SA is proposing to revise Section 5.18.1 (Market
Data submission) of the Procedures to delete a paragraph that notes
that a Select Member may decide to receive or stop receiving Price
Requirement Files and provides instructions for how a such Select
Member can choose to receive or stop receiving Price Requirement Files.
Indeed, the election to be a Price Contribution Participant will be
made by the Select Member by using the new Select Member Form and this
election can be updated by updating such form in the conditions set out
in amended paragraph (c) of Section 5.11 of the Procedures.
Furthermore, Clauses 10.2.1 and 11.2.2 of Appendix 1 (CDS Default
Management Process) would be revised to include representatives
nominated by Select Members to the CDS Default Management Group and CDS
Default Management Committee since the Select Members will be permitted
to opt for the possibility to participate in the CDS Default Management
Group and/or the CDS Default Management Committee in accordance with
amended Article 2.2.0.4 (currently Article 2.2.0.5) as further
explained in page 11 above.
LCH SA is also proposing to amend indent (d) entitled ``Due
diligence and review process'' of Section 1.1 (Application Procedure)
of the Procedures to include the obligation for Select Members to
successful carry out tests as referenced in Article 2.2.1.1 (xi) of the
Rule Book.
Finally, LCH SA is proposing to revise Section 5.11(c) (Update of
the Select Member Form) of the Procedures to also specify that the
Select Member, having elected to participate in Competitive Bidding,
will be required to participate in Competitive Bidding for each Auction
Package.
(iv) Updated Select Member Form
LCH SA is proposing to revise Article 2.2.0.5 to enable Select
Members to elect to opt out of Competitive Bidding and all other
elections in sub-paragraphs (i) to (iv) of Article 2.2.0.5, under
conditions set forth in Section 5 of the Procedures as this is
currently the case but in respect of the contribution to prices only.
The Select Member Form will allow the Select Member to notify its
elections to LCH SA and also to update it should it wish to change any
of its elections, in accordance with the amended provisions of Section
5.11 of the Procedures, as further described below.
LCH SA would revise Section 5.11(c), ``Update of the Select Member
Form'', (formerly, ``Update of the Product Family Form'') of the
Procedures to cover the update process of the Select Member Form, as
the Product Family Form, and any reference thereto, is no longer
relevant. Any update to the Select Member Form may be subject to
passing requisite tests prescribed by LCH SA and if the update pertains
to the Select Member no longer participating in the Competitive Bidding
Process, such update will be effective on the eighth Clearing Day
following the Clearing Day on which the updated Select Member Form is
received, in order to ensure that the Select Member will still be
required to participate in Competitive Bidding if an Event of Default
is declared in respect of another Clearing Member at the same time the
updated Select Member Form of such Select Member is received by LCH SA.
LCH SA is also proposing to specify that Select Members should be
able to
[[Page 21582]]
change any of its election(s) via provision of an updated Select Member
Form to the CDSClear Business Development & Relationship Management
team via email.
(v) Additional Amendments
LCH SA also proposes to make other revisions to the Rule Book and
Section 1 and Section 5 of the Procedures to correct certain cross-
references, grammar and/or typographical errors, and to provide
additional clarification. For example, Article 1.2.2.4 of the Rule Book
will be amended to clarify that the reference to ``days'' means
``calendar days'' for the avoidance of doubt.
2. Statutory Basis
LCH SA believes the Proposed Rule Change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to registered clearing agencies, including with section
17A(b)(3)(B) \4\ and section 17A(b)(3)(F) of the Act.\5\ section
17A(b)(3)(B) of the Act requires, inter alia, that the rules of a
clearing agency provide that any registered broker or dealer, bank or
other person or class of persons may become a participant in such
clearing agency.\6\ Section 17A(b)(3)(F) of the Act requires, inter
alia, that a clearing agency's rules are designed to promote the prompt
and accurate clearance and settlement of securities transactions, to
assure the safeguarding of securities and funds in the custody or
control of LCH SA, and are not designed to permit the unfair
discrimination in the admission of participants or among participants
in the use of the clearing agency.\7\
---------------------------------------------------------------------------
\4\ 15 U.S.C. 78q-1(b)(3)(B).
\5\ 15 U.S.C. 78q-1(b)(3)(F).
\6\ Id.
\7\ Id.
---------------------------------------------------------------------------
Per LCH SA's current CDSClear Rule Book, a Clearing Member may
either be designated as a General Member or a Select Member.\8\ A
General Member is either a CCM \9\ or an FCM/BD Clearing Member \10\
that has been admitted by LCH SA as a General Member in accordance with
Section 1 of the Procedures.\11\ A Select Member is either a CCM or an
FCM/BD Clearing Member that: (a) does not provide CDS Client Clearing
Services to Clients other than Affiliated Firms; and (b) has been
admitted by LCH SA as a Select Member in accordance with Section 1 of
the Procedures.\12\ LCH SA is proposing to amend the definition of a
Select Member to allow Select Members to offer client clearing to any
client, including Affiliates. In doing so, LCH SA is proposing to
remove the obligation that Select Members participate in Competitive
Bidding for Auction Packages including trades belonging to the Product
Families they actively trade. Instead, Select Members would have the
ability to elect to participate in Competitive Bidding for Auction
Packages at their own discretion. Furthermore, Select Members may elect
to contribute end of day prices and participate in the Default
Management Process and Default Management Committee. This will enhance
LCH SA's ability to contain losses and manage a clearing member
default. Select Members would also be incentivized to become General
Members for purposes of participating in default auctions as their
client clearing activity grows. By expanding its membership for Select
Members to include any client, including Affiliates and thus expand
participation in clearing, LCH SA believes such changes are consistent
with section 17A(b)(3)(B) \13\ and section 17A(b)(3)(F) \14\ of the Act
such that its rules are designed to promote the prompt and accurate
clearance and settlement of securities transactions, to assure the
safeguarding of securities and funds in the custody or control of LCH
SA, and are not designed to permit the unfair discrimination in the
admission of participants or among participants in the use of the
clearing agency.
---------------------------------------------------------------------------
\8\ See Section 1.1.1. (``Terms defined in the CDS Clearing Rule
Book'') of the CDSClear Rule Book. https://www.lch.com/system/files/media_root/CDSClear_Rule_Book_26.09.2023.pdf.
\9\ A ``CCM'' is defined in the current CDS Clearing Rule Book
as any legal entity admitted as a clearing member in accordance with
the CDS Clearing Rules and party to the CDS Admission Agreement,
provided that if such entity wishes to provide CDS CCM Client
Clearing Services described in TITLE V, it shall either (i) be a
General Member or (ii) provide such CDS CCM Client Clearing Services
to its Affiliated Firms only. If such entity is an FCM/BD, it must
satisfy LCH SA that it is able to provide the CDS Client Clearing
Services in accordance with Title V prior to offering such services.
\10\ A ``FCM/BD Clearing Member'' is defined in the current CDS
Clearing Rule Book as any FCM, BD or a legal entity that is both FCM
and BD that has been admitted as a clearing member in accordance
with the CDS Clearing Rules and is a party to the CDS Admission
Agreement and which has not elected to become a CCM, provided that
if such FCM/BD Clearing Member wishes to provide CDS Client Clearing
Services described in TITLE VI, it shall either (i) be a General
Member or (ii) provide such CDS Client Clearing Services to its
Affiliated Firms only.
\11\ See Section 1 (``Membership'') of the CDS Clearing
Procedures. CDSClear_Section_1_Procedures__18.07.2019.pdf (lch.com).
\12\ Id.
\13\ 15 U.S.C. 78q-1(b)(3)(B).
\14\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
LCH SA also believes the Proposed Rule Change is consistent with
Rule 17Ad-22(e)(1) of the Act which requires, inter alia, that a
covered clearing agency establish, implement, maintain and enforce
written policies and procedures reasonably designed to provide for a
well-founded, clear, transparent, and enforceable legal basis for each
aspect of its activities in all relevant jurisdictions.\15\ LCH SA
believes the changes to its Rule Book and Procedures are clear,
understandable, and consistent with the relevant laws and regulations
applicable to LCH SA. In addition, LCH SA believes changes to the Rule
Book and Procedures regarding the extension of the possibility for
Select Members to provide CDSClear clearing services to any client,
including Affiliates and publishing such changes on its public website
provides greater transparency to Clearing Members and their customers,
and to the general public. Therefore, LCH SA believes that the Proposed
Rule Change is consistent with Rule 17Ad-22(e)(1).\16\
---------------------------------------------------------------------------
\15\ 17 CFR 240.17Ad-22(e)(1).
\16\ Id.
---------------------------------------------------------------------------
LCH SA also believes that the Proposed Rule Change is consistent
with Rule 17Ad-22(e)(13) \17\ of the Act which requires, inter alia,
that a covered clearing agency establish, implement, maintain and
enforce written policies and procedures reasonably designed to ensure
the covered clearing agency has the authority and operational capacity
to take timely action to contain losses and liquidity demands and
continue to meet its obligations.\18\ Select Members were previously
required to bid during default management auctions if the auction
package contained products in the product family they subscribed to,
regardless of whether the Select Member actively traded the product.
The requirement to participate in such default auctions presents
challenges for certain Select Members that don't actively trade in the
products being auctioned, and thus may serve as an obstacle to clearing
agency membership. Select Members also may not have the operational
capacity to participate in default auctions as General Members. This is
evidenced by LCH SA's experience facilitating fire drill exercises
requiring participation by Select Members.\19\ LCH SA's proposed
changes to the mandatory obligation to bid in default auctions for
Select Members will address this issue. Furthermore, LCH SA believes
the existing pool of General Members required to bid, in addition to
the Select
[[Page 21583]]
Members that opt in to bidding on default auction portfolios provides
sufficient participation for purposes of ensuring LCH SA can take
timely action to contain losses and liquidity demands and continue to
meet its obligations. Therefore, LCH SA believes that the Proposed Rule
Change is consistent with Rule 17Ad-22(e)(13).\20\
---------------------------------------------------------------------------
\17\ 17 CFR 240.17Ad-22(e)(13).
\18\ Id.
\19\ For example, Select Members have historically required
assistance managing default files and have routinely requested
assistance addressing questions during fire drill exercises.
\20\ 17 CFR 240.17Ad-22(e)(13).
---------------------------------------------------------------------------
Finally, LCH SA believes that the Proposed Rule Change is
consistent with Rule 17Ad-22(e)(18) \21\ under the Act. Rule 17Ad-
22(e)(18) under the Act requires, inter alia, that a covered clearing
agency establish, implement, maintain and enforce written policies and
procedures reasonably designed to establish objective, risk-based, and
publicly disclosed criteria for participation, which permit fair and
open access by direct and, where relevant, indirect participants and
other financial market utilities, 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.\22\ LCH SA is proposing to expand its membership criteria for
Select Members by allowing Select Members to clear for any clients,
including Affiliates. LCH SA is proposing to remove the obligation that
Select Members participate in Competitive Bidding for Auction Packages
including trades belonging to the Product Families they actively trade.
Instead, Select Members would have the ability to elect to participate
in Competitive Bidding for Auction Packages at their own discretion.
LCH SA believes this proposed change more accurately captures the risk
profile of Select Members as it pertains to their size and operational
capabilities. Specifically, Select Members are typically non-CDS
market-making banks (price takers) and thus, smaller Clearing Members.
In addition, Select Members may not have the operational capacity to
bid on products they don't actively trade during a default management
auction. As such, LCH SA believes that the Proposed Rule Change is
consistent with Rule 17Ad-22(e)(18) under the Act.\23\
---------------------------------------------------------------------------
\21\ 17 CFR 240.17Ad-22(e)(18).
\22\ Id.
\23\ Id.
---------------------------------------------------------------------------
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.\24\
---------------------------------------------------------------------------
\24\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------
LCH SA does not believe the Proposed Rule Change would impose
burdens on competition that are not necessary or appropriate in
furtherance of the purposes of the Act. Specifically, the Proposed Rule
Change will contribute to offer access to clearing services to any
client of Select Members expanding the client clearing activity. The
Proposed Rule Change will also remove the burden of Select Members from
having the obligation to bid on products they don't actively trade in
default management auctions. LCH SA further believes the Proposed Rule
Change is equitable for both General Members and Select Members, as
clearing members will continue to have discretion in electing to be
either General Members or Select Members under the new membership
model. Furthermore, existing General Members will not be prevented from
switching to become Select Members under the Proposed Rule Change. The
increased access to clearing services under the Proposed Rule Change
may result in increased liquidity in the service as membership grows.
Therefore, LCH SA does not believe that the Proposed Rule Change would
impose burdens on competition that are not necessary or appropriate in
furtherance of the purposes of the Act.
C. Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants or Others
Written comments relating to the Proposed Rule Change have not been
solicited or received. LCH SA will notify the Commission of any written
comments received by LCH SA.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove such proposed rule change, or (B)
institute proceedings to determine whether the proposed rule change
should be disapproved.
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-2024-002 on the subject line.
Paper Comments
Send paper comments in triplicate to Vanessa A.
Countryman, Secretary, Securities and Exchange Commission, 100 F Street
NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-LCH SA-2024-002. 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
a.m. and 3 p.m. Copies of such filings will also be available for
inspection and copying at the principal office of LCH SA and on LCH
SA's website at https://www.lch.com/resources/rules-and-regulations/proposed-rule-changes-0.
Do not include personal identifiable information in submissions;
you should submit only information that you wish to make available
publicly. We may redact in part or withhold entirely from publication
submitted material that is obscene or subject to copyright protection.
All submissions should refer to file number SR-LCH SA-2024-002 and
should be submitted on or before April 18, 2024.
[[Page 21584]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\45\
---------------------------------------------------------------------------
\45\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-06580 Filed 3-27-24; 8:45 am]
BILLING CODE 8011-01-P
