Self-Regulatory Organizations; LCH SA; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Cash Spreads and Fees on Securities Collateral, 87656-87659 [2024-25533]
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87656
Federal Register / Vol. 89, No. 213 / Monday, November 4, 2024 / Notices
will not cause any unnecessary or
inappropriate burden on intermarket
competition, as the proposed incentive
program applies uniformly to any
purchaser of Historical Depth Reports.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 16 and paragraph (f) of Rule
19b–4 17 thereunder. At any time within
60 days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change should be approved or
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:
lotter on DSK11XQN23PROD with NOTICES1
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–
CboeBYX–2024–038 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–CboeBYX–2024–038. 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–CboeBYX–2024–038 and should be
submitted on or before November 25,
2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–25537 Filed 11–1–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–101469; File No. SR–LCH
SA–2024–004]
Self-Regulatory Organizations; LCH
SA; Notice of Filing and Immediate
Effectiveness of Proposed Rule
Change Relating to Cash Spreads and
Fees on Securities Collateral
October 29, 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 October
23, 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 (‘‘Proposed
Rule Change’’) described in Items I, II
and III below, which Items have been
18 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
16 15
U.S.C. 78s(b)(3)(A).
17 17 CFR 240.19b–4(f).
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primarily prepared by LCH SA. LCH SA
filed the proposed rule change pursuant
to Section 19(b)(3)(A) of the Act,3 and
Rule 19b–4(f)(2) 4 thereunder, so that the
proposal was effective upon filing with
the Commission. The Commission is
publishing this notice to solicit
comments on the Proposed Rule Change
from interested persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
LCH SA is proposing to amend the
fees it charges clearing members for
cash and securities collateral posted as
initial margin for its clearing services
including CDSClear (the ‘‘Proposed Rule
Change’’).
The text of the Proposed Rule Change
has been annexed as Exhibit 5 to File
No. SR–LCH SA–2024–004.5 The
implementation of the Proposed Rule
Change will be contingent on LCH SA’s
receipt of all necessary regulatory
approvals.
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
LCH SA currently applies a spread for
clearing member cash collateral and
charges fees on securities collateral
posted to cover initial margin
requirements for its CDSClear business.
Cash collateral spreads are primarily
based on underlying market conditions
for a given currency and are subtracted
from a reference index to determine a
total rate to be applied to CDSClear
house and client accounts. Securities
collateral fees are primarily based on a
combination of factors, including, but
not limited to operational costs to
manage a specific non-cash collateral
type, the liquidation profile and
3 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
5 All capitalized terms not defined herein have
the same definition as in the CDS Clearing Rule
Book available at https://www.lch.com/system/files/
media_root/CDSClear_Rule_Book_01.02.2024.pdf.
4 17
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04NON1
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Federal Register / Vol. 89, No. 213 / Monday, November 4, 2024 / Notices
subsequent impact on LCH SA’s
liquidity coverage ratio of the securities
collateral and commercial
considerations such as competitive
landscape. The securities collateral fees
charged to clearing members varies
based on the instrument type (e.g.,
government securities), whether the
securities collateral is posted on behalf
of the CDSClear house account or on
behalf of CDSClear clients and the
method of posting the collateral (i.e.,
full title transfer, pledge or tri-party).
The purpose of the Proposed Rule
Change is for LCH SA to amend the cash
spreads and securities collateral fees for
margin collateral posted by clearing
members.
i. Changes to Cash Collateral Spreads
LCH SA currently accepts euro, GBP
and USD cash to satisfy initial margin
requirements for its CDSClear business.
Clearing members that post these
eligible currencies as margin may
receive interest on these balances based
on an associated benchmark index and
cash collateral spreads applied by LCH
SA. The total rate that clearing members
and their clients may be eligible for is
the difference between the value of the
underlying benchmark index and the
spreads applied by LCH SA. Interest
earned on cash collateral is based on
daily balances by account and posted
monthly to clearing member accounts.
LCH SA currently applies the
following cash collateral spreads for
CDSClear house and client accounts:
Cash collateral fee/spread
(bps)
Currency
Unsecured overnight index
All markets
EUR .......................................................................
GBP .......................................................................
USD .......................................................................
lotter on DSK11XQN23PROD with NOTICES1
LCH SA is proposing to decrease the
cash collateral spread for EUR, GBP and
USD by 2bps. Accordingly, LCH SA will
apply a revised spread of 19.5bps, 33bps
and 28bps for EUR, GBP and USD cash
collateral balances, respectively, posted
for initial margin. In addition, LCH SA
is proposing to add a column reflecting
the current Default Fund spread for
purposes of transparency, however LCH
SA is not proposing any changes to this
spread. LCH SA is also not proposing
any changes to the cash collateral
spread for CDSClear clients. LCH SA is
proposing these changes primarily to
encourage members to post more cash
collateral, as non-cash collateral
deposited has become a larger
proportion of all margin collateral on
deposit. An increase in the proportion
of cash collateral on deposit will
enhance LCH SA’s Liquidity Coverage
Ratio, provide LCH SA with the
required operational liquidity to inject
into the settlement and payment
networks and to ensure there is no
disruption in clearing services, should
LCH SA liquidate the portfolio of a
defaulted clearing member.
LCH SA is proposing to reduce the
spreads for eligible cash collateral
balances to encourage CDSClear clearing
members to post more cash as initial
margin for clearing and to better
diversify the mix of collateral posted as
initial margin from clearing members, as
ÖSTR ........................................................
SONIA ......................................................
FEDFUND ................................................
non-cash collateral has become a greater
portion of all margin collateral on
deposit. LCH SA believes this will
enhance its liquidity risk management
processes by ensuring it maintains
sufficient liquid resources (i.e., cash) to
facilitate the timely settlement of its
payment obligations with a high degree
of confidence under a wide range of
foreseeable stress scenarios. In addition,
an increase in cash collateral will
support LCH SA’s ability to manage the
ongoing operational liquidity needs for
the purposes of injecting liquidity into
the various settlement and payment
networks and will further support LCH
SA’s default management process (e.g.,
during the liquidation of a member
portfolio). LCH SA does not believe any
changes are necessary to the cash
collateral spreads for CDSClear Clients
or with respect to cash posted to satisfy
Default Fund requirements. CDSClear
Clients will continue to benefit from a
larger spread than CDSClear House
accounts and the Default Fund cash
collateral spread will remain
unchanged, as clearing members must
continue to meet their Default Fund
obligations in cash collateral.
ii. Changes to Securities Collateral Fees
LCH SA is also proposing to amend
the fees it charges clearing members for
securities collateral posted as initial
margin. Eligible securities collateral
currently includes government
CDSClear
clients
21.5
35
30
6.5
20
15
Government Securities ..........
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Full title
transfer
Australia .......................................................
Austria ..........................................................
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11.5
securities from select countries, select
European supranational debt,
government agency debt issued by
Rentenbank (Germany), Kreditanstalt für
Wiederaufbau (Germany) and CADES
(France) and select equities listed on the
EURO STOXX 50 index. The fees
charged on each securities collateral
type varies based on the mechanism of
how the clearing member posts the
collateral. For example, securities
collateral may be deposited via Full
Title Transfer (FTT) to an account
opened by LCH SA at various central
securities depositories (CSDs). Clearing
members may also pledge securities
collateral directly to LCH SA, whereby
it will deposit securities via a Single
Pledgor Pledged Account (SPPA)
opened by LCH SA at Euroclear Bank.
LCH SA also offers a Tri-Party solution
whereby LCH SA and a Clearing
member may appoint Euroclear Bank
and/or Euroclear France as a triparty
agent and authorize such triparty agent
to enter settlement instructions on their
behalf into the securities settlement
system to affect movements of securities
between a giver account and a taker
account opened with the relevant
triparty agent on a full title transfer
basis for the purposes of transferring
Collateral to LCH SA or releasing such
collateral. LCH SA currently applies the
following fees for securities collateral
for CDSClear house and client accounts:
House
Securities
Default funds
Client
Pledge
13
11
E:\FR\FM\04NON1.SGM
CDSClear
clients
Triparty
NA
15
04NON1
NA
9.5
10
10
87658
Federal Register / Vol. 89, No. 213 / Monday, November 4, 2024 / Notices
House
Securities
Supranationals ......................
Agencies ...............................
lotter on DSK11XQN23PROD with NOTICES1
Equities ..................................
Belgium ........................................................
Canada .........................................................
Denmark .......................................................
Finland ..........................................................
France ..........................................................
Germany .......................................................
Italy ...............................................................
Japan ............................................................
Netherlands ..................................................
Norway .........................................................
Portugal ........................................................
Spain ............................................................
Sweden ........................................................
Switzerland ...................................................
UK ................................................................
USA ..............................................................
European Financial Stability Facility ............
European Stability Mechanism ....................
European Investment Bank ..........................
European Union ...........................................
Investment Bank for Reconstruction and
Development.
Rentenbank ..................................................
Kreditanstalt für Wiederaufbau ....................
CADES .........................................................
All (as listed in Haircut Schedule) ................
LCH SA is proposing to increase the
fees for securities collateral posted via
FTT or tri-party for clearing members by
1bp and by 10bps for securities
collateral posted via pledge. LCH SA is
also proposing to remove the second
footnote to the securities collateral fee
table, as the Triparty fees are now
currently effective for all services. LCH
SA is not proposing any changes to the
fees charged to CDSClear Clients or for
other non-cash collateral types. As
previously noted, LCH SA charges
different fees depending on the type of
securities, the way that such securities
are deposited, as well as the type of
activity these cover. As a reminder, LCH
SA has the capacity to raise euro
liquidity by:
• pledging euro securities posted via
FTT in the Banque de France 3G Pool;
and
• executing cross-currency repo
trades to borrow euro cash,
collateralized by U.S. Treasuries and
GBP Gilts posted via FTT.
However, securities posted by
clearing members via pledge cannot be
used for liquidity risk management
purposes, and as such, are not
considered liquid assets. LCH SA
believes the increase in the fees for
securities collateral and concurrent
decrease in the spread for cash collateral
will create an additional incentive for
clearing members to post cash as initial
margin. Consequently, this will
strengthen LCH SA’s Liquidity Coverage
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transfer
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Pledge
9.5
NA
NA
9.5
9.5
9.5
9.5
NA
9.5
NA
9.5
9.5
NA
NA
NA
NA
11.5
11.5
11.5
11.5
11.5
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
13
13
13
13
15
15
15
NA
11.5
11.5
NA
NA
10
10
10
NA
CDSClear members and concluded these
changes will not have a significant
impact on expected revenues and are
thus reasonable for CDSClear clearing
members.
In addition, LCH SA believes the
Proposed Rule Change is equitable for
all participants. All CDSClear Members
will continue to have the choice to post
either securities collateral or cash
collateral to satisfy initial margin
requirements. Clearing members
wishing to post securities collateral via
FTT will continue to face a lower fee
than posting via a pledge arrangements.
Likewise, clearing members may
continue to post securities collateral via
the tri-party option at a lower fee rate
than FTT or via pledge. LCH SA
believes the change in securities
collateral fees are equitable for all
clearing members and enables LCH SA
to strengthen its liquidity risk profile.
LCH SA also believes the
amendments to the spreads applied to
cash collateral and fees applied to
securities collateral for the CDSClear
business are consistent with the
requirements set forth in Exchange Act
Rule 17Ad–22(e)(7)(i).9 Exchange Act
Rule 17Ad–22(e)(7)(i) requires clearing
agencies to, inter alia, establish,
implement, maintain and enforce
written policies and procedures
reasonably designed to . . . maintain
sufficient liquid resources at the
7 15
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CDSClear
clients
15
NA
NA
15
15
15
15
NA
15
NA
NA
15
NA
NA
15
15
15
15
15
15
15
2. Statutory Basis
LCH SA believes that the Proposed
Rule Change is consistent with the
requirements of Section 17A of the
Exchange Act 6 and the regulations
thereunder applicable to LCH SA.
Section 17A(b)(3)(D) of the Act 7
requires that the rules of a clearing
agency provide for the equitable
allocation of reasonable dues, fees and
other charges among its participants.
LCH SA believes the amendments to
the spread applied to cash collateral and
fees applied to securities collateral for
the CDSClear business are reasonable.
To ensure it continues to maintain
sufficient liquid resources to meet the
minimum liquid resource requirement
as set forth in Exchange Act Rule 17Ad–
22(e)(7)(i), 8 LCH SA is proposing to
increase the fees for securities collateral
posted as margin to strengthen its
Liquidity Coverage Ratio and further
enhance LCH SA’s liquidity risk profile.
Concurrent with the increase in fees for
securities collateral, LCH SA is
proposing to decrease the spread for
cash collateral. LCH SA assessed the
impact of the Proposed Rule Change by
applying the proposed cash spreads and
securities collateral fees against the
current portfolio of margin collateral for
U.S.C. 78a et seq.
U.S.C. 78q–1(b)(3)(D).
8 17 CFR 240.17Ad–22(e)(7)(i).
Triparty
11
13
13
11
11
11
11
13
11
13
11
11
13
13
11
11
13
13
13
13
13
Ratio and further enhance LCH SA’s
liquidity risk profile.
6 15
Client
9 Id.
E:\FR\FM\04NON1.SGM
04NON1
Federal Register / Vol. 89, No. 213 / Monday, November 4, 2024 / Notices
lotter on DSK11XQN23PROD with NOTICES1
minimum in all relevant currencies to
effect same-day and, where appropriate,
intraday and multiday settlement of
payment obligations with a high degree
of confidence under a wide range of
foreseeable stress scenarios that
includes, but is not limited to, the
default of the participant family that
would generate the largest aggregate
payment obligation for the covered
clearing agency in extreme but plausible
market conditions.10 As previously
noted, LCH SA anticipates the Proposed
Rule Change will strengthen its
Liquidity Coverage Ratio and further
enhance its liquidity risk profile by
incentivizing clearing members to
increase the amount of cash to satisfy
margin requirements. The additional
cash will add to LCH SA’s total liquid
resources, which can be used for the
settlement of daily payment obligations,
including with respect to the default of
the participant family generating the
largest aggregate payment obligation for
LCH SA.
For these reasons, LCH SA believes
the Proposed Rule Change is consistent
with the requirements of Section
17A(b)(3)(D) of the Act 11 in that the
amendments to the cash spreads and
securities fees are reasonable and
equitable among its participants. In
addition, LCH SA believes that the
Proposed Rule Change is consistent
with the requirements of Exchange Act
Rule 17Ad–22(e)(7)(i) 12 by enhancing
LCH SA’s liquidity risk profile.
B. Clearing Agency’s Statement on
Burden on Competition
Section 17A(b)(3)(I) of the Act 13
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. LCH SA does not
believe that the Proposed Rule Change
would impose any burden on
competition. The Proposed Rule Change
will enhance LCH SA’s ability to
manage the liquidity risks and related
costs associated with converting
securities collateral to cash and will
apply equally to all participants. LCH
SA also believes the proposed increase
in fees for securities collateral will not
be burdensome for participants, as
participants will continue to have the
option of posting securities collateral as
initial margin or instead post cash
collateral subject to the decreased
spread. Therefore, LCH SA does not
believe that the Proposed Rule Change
10 Id.
11 15
U.S.C. 78q–1(b)(3)(D).
CFR 240.17Ad–22(e)(7)(i).
13 15 U.S.C. 78q–1(b)(3)(I).
12 17
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Jkt 265001
would impose any burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Act.
C. Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received From Members,
Participants or Others
Written comments relating to the
Proposed Rule Change have not been
solicited or received. LCH SA will
notify the Commission of any written
comments received by LCH SA.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and paragraph (f) of Rule
19b–4 thereunder. At any time within
60 days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
87659
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–2024–004 and
should be submitted on or before
November 25, 2024.
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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Sherry R. Haywood,
Assistant Secretary.
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules-regulations/self-regulatoryorganization-rulemaking); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
LCH SA–2024–004 on the subject line.
SECURITIES AND EXCHANGE
COMMISSION
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–2024–004. 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-regulations/self-regulatoryorganization-rulemaking). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
PO 00000
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[FR Doc. 2024–25533 Filed 11–1–24; 8:45 am]
BILLING CODE 8011–01–P
[Investment Company Act Release No.
35351A; 812–15580]
Institutional Investment Strategy Fund
and Buena Capital Advisors, LLC
October 29, 2024.
Securities and Exchange
Commission (‘‘Commission’’ or ‘‘SEC’’).
ACTION: Notice.
AGENCY:
Notice of an application under section
6(c) of the Investment Company Act of
1940 (the ‘‘Act’’) for an exemption from
sections 18(a)(2), 18(c) and 18(i) of the
Act, under sections 6(c) and 23(c) of the
Act for an exemption from rule 23c–3
under the Act, and for an order pursuant
to section 17(d) of the Act and rule 17d–
1 under the Act.
SUMMARY OF APPLICATION: Applicants
request an order to permit certain
registered closed-end investment
companies to issue multiple classes of
shares and to impose asset-based
14 17
E:\FR\FM\04NON1.SGM
CFR 200.30–3(a)(12).
04NON1
]]>Agencies
[Federal Register Volume 89, Number 213 (Monday, November 4, 2024)]
[Notices]
[Pages 87656-87659]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-25533]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101469; File No. SR-LCH SA-2024-004]
Self-Regulatory Organizations; LCH SA; Notice of Filing and
Immediate Effectiveness of Proposed Rule Change Relating to Cash
Spreads and Fees on Securities Collateral
October 29, 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 October 23, 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
(``Proposed Rule Change'') described in Items I, II and III below,
which Items have been primarily prepared by LCH SA. LCH SA filed the
proposed rule change pursuant to Section 19(b)(3)(A) of the Act,\3\ and
Rule 19b-4(f)(2) \4\ thereunder, so that the proposal was effective
upon filing with the Commission. The Commission is publishing this
notice to solicit comments on the Proposed Rule Change from interested
persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
LCH SA is proposing to amend the fees it charges clearing members
for cash and securities collateral posted as initial margin for its
clearing services including CDSClear (the ``Proposed Rule Change'').
The text of the Proposed Rule Change has been annexed as Exhibit 5
to File No. SR-LCH SA-2024-004.\5\ The implementation of the Proposed
Rule Change will be contingent on LCH SA's receipt of all necessary
regulatory approvals.
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\5\ All capitalized terms not defined herein have the same
definition as in the CDS Clearing Rule Book available at https://www.lch.com/system/files/media_root/CDSClear_Rule_Book_01.02.2024.pdf.
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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 such statements.
A. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
1. Purpose
LCH SA currently applies a spread for clearing member cash
collateral and charges fees on securities collateral posted to cover
initial margin requirements for its CDSClear business. Cash collateral
spreads are primarily based on underlying market conditions for a given
currency and are subtracted from a reference index to determine a total
rate to be applied to CDSClear house and client accounts. Securities
collateral fees are primarily based on a combination of factors,
including, but not limited to operational costs to manage a specific
non-cash collateral type, the liquidation profile and
[[Page 87657]]
subsequent impact on LCH SA's liquidity coverage ratio of the
securities collateral and commercial considerations such as competitive
landscape. The securities collateral fees charged to clearing members
varies based on the instrument type (e.g., government securities),
whether the securities collateral is posted on behalf of the CDSClear
house account or on behalf of CDSClear clients and the method of
posting the collateral (i.e., full title transfer, pledge or tri-
party). The purpose of the Proposed Rule Change is for LCH SA to amend
the cash spreads and securities collateral fees for margin collateral
posted by clearing members.
i. Changes to Cash Collateral Spreads
LCH SA currently accepts euro, GBP and USD cash to satisfy initial
margin requirements for its CDSClear business. Clearing members that
post these eligible currencies as margin may receive interest on these
balances based on an associated benchmark index and cash collateral
spreads applied by LCH SA. The total rate that clearing members and
their clients may be eligible for is the difference between the value
of the underlying benchmark index and the spreads applied by LCH SA.
Interest earned on cash collateral is based on daily balances by
account and posted monthly to clearing member accounts.
LCH SA currently applies the following cash collateral spreads for
CDSClear house and client accounts:
----------------------------------------------------------------------------------------------------------------
Cash collateral fee/spread (bps)
Unsecured overnight -----------------------------------------------
Currency index CDSClear
All markets clients Default funds
----------------------------------------------------------------------------------------------------------------
EUR................................... [euro]STR............... 21.5 6.5 11.5
GBP................................... SONIA................... 35 20
USD................................... FEDFUND................. 30 15
----------------------------------------------------------------------------------------------------------------
LCH SA is proposing to decrease the cash collateral spread for EUR,
GBP and USD by 2bps. Accordingly, LCH SA will apply a revised spread of
19.5bps, 33bps and 28bps for EUR, GBP and USD cash collateral balances,
respectively, posted for initial margin. In addition, LCH SA is
proposing to add a column reflecting the current Default Fund spread
for purposes of transparency, however LCH SA is not proposing any
changes to this spread. LCH SA is also not proposing any changes to the
cash collateral spread for CDSClear clients. LCH SA is proposing these
changes primarily to encourage members to post more cash collateral, as
non-cash collateral deposited has become a larger proportion of all
margin collateral on deposit. An increase in the proportion of cash
collateral on deposit will enhance LCH SA's Liquidity Coverage Ratio,
provide LCH SA with the required operational liquidity to inject into
the settlement and payment networks and to ensure there is no
disruption in clearing services, should LCH SA liquidate the portfolio
of a defaulted clearing member.
LCH SA is proposing to reduce the spreads for eligible cash
collateral balances to encourage CDSClear clearing members to post more
cash as initial margin for clearing and to better diversify the mix of
collateral posted as initial margin from clearing members, as non-cash
collateral has become a greater portion of all margin collateral on
deposit. LCH SA believes this will enhance its liquidity risk
management processes by ensuring it maintains sufficient liquid
resources (i.e., cash) to facilitate the timely settlement of its
payment obligations with a high degree of confidence under a wide range
of foreseeable stress scenarios. In addition, an increase in cash
collateral will support LCH SA's ability to manage the ongoing
operational liquidity needs for the purposes of injecting liquidity
into the various settlement and payment networks and will further
support LCH SA's default management process (e.g., during the
liquidation of a member portfolio). LCH SA does not believe any changes
are necessary to the cash collateral spreads for CDSClear Clients or
with respect to cash posted to satisfy Default Fund requirements.
CDSClear Clients will continue to benefit from a larger spread than
CDSClear House accounts and the Default Fund cash collateral spread
will remain unchanged, as clearing members must continue to meet their
Default Fund obligations in cash collateral.
ii. Changes to Securities Collateral Fees
LCH SA is also proposing to amend the fees it charges clearing
members for securities collateral posted as initial margin. Eligible
securities collateral currently includes government securities from
select countries, select European supranational debt, government agency
debt issued by Rentenbank (Germany), Kreditanstalt f[uuml]r
Wiederaufbau (Germany) and CADES (France) and select equities listed on
the EURO STOXX 50 index. The fees charged on each securities collateral
type varies based on the mechanism of how the clearing member posts the
collateral. For example, securities collateral may be deposited via
Full Title Transfer (FTT) to an account opened by LCH SA at various
central securities depositories (CSDs). Clearing members may also
pledge securities collateral directly to LCH SA, whereby it will
deposit securities via a Single Pledgor Pledged Account (SPPA) opened
by LCH SA at Euroclear Bank. LCH SA also offers a Tri-Party solution
whereby LCH SA and a Clearing member may appoint Euroclear Bank and/or
Euroclear France as a triparty agent and authorize such triparty agent
to enter settlement instructions on their behalf into the securities
settlement system to affect movements of securities between a giver
account and a taker account opened with the relevant triparty agent on
a full title transfer basis for the purposes of transferring Collateral
to LCH SA or releasing such collateral. LCH SA currently applies the
following fees for securities collateral for CDSClear house and client
accounts:
----------------------------------------------------------------------------------------------------------------
House Client
---------------------------------------------------------------
Securities Full title CDSClear
transfer Pledge Triparty clients
----------------------------------------------------------------------------------------------------------------
Government Securities......... Australia....... 13 NA NA 10
Austria......... 11 15 9.5 10
[[Page 87658]]
Belgium......... 11 15 9.5 10
Canada.......... 13 NA NA 10
Denmark......... 13 NA NA 10
Finland......... 11 15 9.5 10
France.......... 11 15 9.5 10
Germany......... 11 15 9.5 10
Italy........... 11 15 9.5 10
Japan........... 13 NA NA 10
Netherlands..... 11 15 9.5 10
Norway.......... 13 NA NA 10
Portugal........ 11 NA 9.5 10
Spain........... 11 15 9.5 10
Sweden.......... 13 NA NA 10
Switzerland..... 13 NA NA 10
UK.............. 11 15 NA 10
USA............. 11 15 NA 10
Supranationals................ European 13 15 11.5 10
Financial
Stability
Facility.
European 13 15 11.5 10
Stability
Mechanism.
European 13 15 11.5 10
Investment Bank.
European Union.. 13 15 11.5 10
Investment Bank 13 15 11.5 10
for
Reconstruction
and Development.
Agencies...................... Rentenbank...... 13 15 11.5 10
Kreditanstalt 13 15 11.5 10
f[uuml]r
Wiederaufbau.
CADES........... 13 15 NA 10
Equities...................... All (as listed 13 NA NA NA
in Haircut
Schedule).
----------------------------------------------------------------------------------------------------------------
LCH SA is proposing to increase the fees for securities collateral
posted via FTT or tri-party for clearing members by 1bp and by 10bps
for securities collateral posted via pledge. LCH SA is also proposing
to remove the second footnote to the securities collateral fee table,
as the Triparty fees are now currently effective for all services. LCH
SA is not proposing any changes to the fees charged to CDSClear Clients
or for other non-cash collateral types. As previously noted, LCH SA
charges different fees depending on the type of securities, the way
that such securities are deposited, as well as the type of activity
these cover. As a reminder, LCH SA has the capacity to raise euro
liquidity by:
pledging euro securities posted via FTT in the Banque de
France 3G Pool; and
executing cross-currency repo trades to borrow euro cash,
collateralized by U.S. Treasuries and GBP Gilts posted via FTT.
However, securities posted by clearing members via pledge cannot be
used for liquidity risk management purposes, and as such, are not
considered liquid assets. LCH SA believes the increase in the fees for
securities collateral and concurrent decrease in the spread for cash
collateral will create an additional incentive for clearing members to
post cash as initial margin. Consequently, this will strengthen LCH
SA's Liquidity Coverage Ratio and further enhance LCH SA's liquidity
risk profile.
2. Statutory Basis
LCH SA believes that the Proposed Rule Change is consistent with
the requirements of Section 17A of the Exchange Act \6\ and the
regulations thereunder applicable to LCH SA. Section 17A(b)(3)(D) of
the Act \7\ requires that the rules of a clearing agency provide for
the equitable allocation of reasonable dues, fees and other charges
among its participants.
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\6\ 15 U.S.C. 78a et seq.
\7\ 15 U.S.C. 78q-1(b)(3)(D).
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LCH SA believes the amendments to the spread applied to cash
collateral and fees applied to securities collateral for the CDSClear
business are reasonable. To ensure it continues to maintain sufficient
liquid resources to meet the minimum liquid resource requirement as set
forth in Exchange Act Rule 17Ad-22(e)(7)(i),\8\ LCH SA is proposing to
increase the fees for securities collateral posted as margin to
strengthen its Liquidity Coverage Ratio and further enhance LCH SA's
liquidity risk profile. Concurrent with the increase in fees for
securities collateral, LCH SA is proposing to decrease the spread for
cash collateral. LCH SA assessed the impact of the Proposed Rule Change
by applying the proposed cash spreads and securities collateral fees
against the current portfolio of margin collateral for CDSClear members
and concluded these changes will not have a significant impact on
expected revenues and are thus reasonable for CDSClear clearing
members.
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\8\ 17 CFR 240.17Ad-22(e)(7)(i).
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In addition, LCH SA believes the Proposed Rule Change is equitable
for all participants. All CDSClear Members will continue to have the
choice to post either securities collateral or cash collateral to
satisfy initial margin requirements. Clearing members wishing to post
securities collateral via FTT will continue to face a lower fee than
posting via a pledge arrangements. Likewise, clearing members may
continue to post securities collateral via the tri-party option at a
lower fee rate than FTT or via pledge. LCH SA believes the change in
securities collateral fees are equitable for all clearing members and
enables LCH SA to strengthen its liquidity risk profile.
LCH SA also believes the amendments to the spreads applied to cash
collateral and fees applied to securities collateral for the CDSClear
business are consistent with the requirements set forth in Exchange Act
Rule 17Ad-22(e)(7)(i).\9\ Exchange Act Rule 17Ad-22(e)(7)(i) requires
clearing agencies to, inter alia, establish, implement, maintain and
enforce written policies and procedures reasonably designed to . . .
maintain sufficient liquid resources at the
[[Page 87659]]
minimum in all relevant currencies to effect same-day and, where
appropriate, intraday and multiday settlement of payment obligations
with a high degree of confidence under a wide range of foreseeable
stress scenarios that includes, but is not limited to, the default of
the participant family that would generate the largest aggregate
payment obligation for the covered clearing agency in extreme but
plausible market conditions.\10\ As previously noted, LCH SA
anticipates the Proposed Rule Change will strengthen its Liquidity
Coverage Ratio and further enhance its liquidity risk profile by
incentivizing clearing members to increase the amount of cash to
satisfy margin requirements. The additional cash will add to LCH SA's
total liquid resources, which can be used for the settlement of daily
payment obligations, including with respect to the default of the
participant family generating the largest aggregate payment obligation
for LCH SA.
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\9\ Id.
\10\ Id.
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For these reasons, LCH SA believes the Proposed Rule Change is
consistent with the requirements of Section 17A(b)(3)(D) of the Act
\11\ in that the amendments to the cash spreads and securities fees are
reasonable and equitable among its participants. In addition, LCH SA
believes that the Proposed Rule Change is consistent with the
requirements of Exchange Act Rule 17Ad-22(e)(7)(i) \12\ by enhancing
LCH SA's liquidity risk profile.
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\11\ 15 U.S.C. 78q-1(b)(3)(D).
\12\ 17 CFR 240.17Ad-22(e)(7)(i).
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B. Clearing Agency's Statement on Burden on Competition
Section 17A(b)(3)(I) of the Act \13\ 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. LCH SA does not
believe that the Proposed Rule Change would impose any burden on
competition. The Proposed Rule Change will enhance LCH SA's ability to
manage the liquidity risks and related costs associated with converting
securities collateral to cash and will apply equally to all
participants. LCH SA also believes the proposed increase in fees for
securities collateral will not be burdensome for participants, as
participants will continue to have the option of posting securities
collateral as initial margin or instead post cash collateral subject to
the decreased spread. Therefore, LCH SA does not believe that the
Proposed Rule Change would impose any burden on competition not
necessary or appropriate in furtherance of the purposes of the Act.
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\13\ 15 U.S.C. 78q-1(b)(3)(I).
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C. Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants or Others
Written comments relating to the Proposed Rule Change have not been
solicited or received. LCH SA will notify the Commission of any written
comments received by LCH SA.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act and paragraph (f) of Rule 19b-4 thereunder. At
any time within 60 days of the filing of the proposed rule change, the
Commission summarily may temporarily suspend such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking);
or
Send an email to [email protected]. Please include
file number SR-LCH SA-2024-004 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-2024-004. 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-regulations/self-regulatory-organization-rulemaking). 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-2024-004 and
should be submitted on or before November 25, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-25533 Filed 11-1-24; 8:45 am]
BILLING CODE 8011-01-P
