Notice2021-24528
Self-Regulatory Organizations; LCH SA; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Fees on Extension of Eligible Collateral
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Published
November 10, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 215 (Wednesday, November 10, 2021)</title>
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[Federal Register Volume 86, Number 215 (Wednesday, November 10, 2021)]
[Notices]
[Pages 62573-62575]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-24528]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93522; File No. SR-LCH SA-2021-003]
Self-Regulatory Organizations; LCH SA; Notice of Filing and
Immediate Effectiveness of Proposed Rule Change Relating to Fees on
Extension of Eligible Collateral
November 4, 2021.
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 22, 2021, 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 prepared primarily 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 proposed rule change was
effective upon filing with the Commission. The Commission is publishing
this notice to solicit comments on the Proposed Rule Change from
interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(2).
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
(a) Banque Centrale de Compensation, which conducts business under
the name LCH SA, is proposing to update the current fee grid to be
applied by LCH SA for the new scope of eligible securities collateral
to be extended to government bonds issued by the following states and
denominated in their domestic currencies: Australia, Canada, Denmark,
Japan, Norway, Sweden and Switzerland \5\ (the ``Proposed Rule
Change'').
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\5\ Self-Regulatory Organizations; LCH SA; Order Approving
Proposed Rule Change Relating to Eligible Collateral and Liquidity
Risk Management, Exchange Act Release No. 34-93176 (Sept. 29, 2021);
86 FR 55061 (Oct. 5, 2021). File No. SR-LCH SA-2021-002.
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The text of the Proposed Rule Change has been annexed [sic] hereto
as Exhibit 5.
II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, LCH SA included statements
concerning the purpose of and basis for the Proposed Rule Change and
discussed any comments it received on the Proposed Rule Change. The
text of these statements may be examined at the places specified in
Item IV below. LCH SA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
1. Purpose
LCH SA charges fees on collateral posted by its clearing members to
cover the CCP margin requirements. The level of fees is defined based
on a combination of various factors such as operational costs to manage
a given type of collateral, ability to generate liquidity from a given
type of collateral (and thus the associated impact on the CCP
[[Page 62574]]
liquidity profile) and commercial considerations such as competitive
landscape. The extension of eligible collateral addresses members'
demand for more flexibility and consistency with industry standards and
market practices. This extension was designed in coherence with the
clearing services offered by LCH SA, the profile of the membership and
the risk policies, regulatory constraints and operational capacity LCH
SA operates under.
As per CDSClear current collateral fee grid (copied below), LCH SA
already charges different fees depending on the type of securities, the
way that such securities are deposited at the CCP as well as the type
of activity these cover. For instance, for securities deposited under
Full Title Transfer (FTT) by a clearing Member to meet the margin
liabilities of its House account (self-clearing activity), LCH SA
charges an 11bps fee on the notional of government bond securities
whereas the charge is 13bps for Agencies and Supranational
securities.\6\ Similarly, LCH SA charges a 10bps fee for both
Government Bonds and Agencies/Supranational securities deposited under
FTT by a clearing member covering its Clients' accounts activity.
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\6\ Self-Regulatory Organizations; LCH SA; Notice of Filing and
Immediate Effectiveness of Proposed Rule Change Relating to
Amendments to LCH SA's Fee Grid for Non Cash Collateral, Exchange
Act Release No. 34-87536 (Nov. 14, 2019); 84 FR 64125 (Nov. 20,
2019) (File No. SR-LCH SA-2019-010).
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House Client
Securities Denominated in ---------------------------------------------------------------
Triparty (bps) FTT (bps) Pledge (bps) (bps)
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Government Securities (as listed in France................. EUR 9.5 11 15 10
Haircut Schedule). Germany................ EUR 9.5 11 15 10
Belgium................ EUR 9.5 11 15 10
Netherlands............ EUR 9.5 11 15 10
Italy.................. EUR 9.5 11 15 10
Portugal............... EUR 9.5 11 15 10
Spain.................. EUR 9.5 11 15 10
Austria................ EUR 9.5 11 15 10
Finland................ EUR 9.5 11 15 10
USA.................... USD 9.5 11 15 10
UK..................... GBP 9.5 11 15 10
Supranationals & Agencies........... EFSB................... EUR 9.5 13 15 10
ESM.................... EUR 9.5 13 15 10
EIB.................... EUR 9.5 13 15 10
EU..................... EUR 9.5 13 15 10
IBRD................... EUR 9.5 13 15 10
KfW.................... EUR 9.5 13 15 10
Rentenbank............. EUR 9.5 13 15 10
Equities............................ As listed in Haircut EUR N/A 13 N/A N/A
Schedule.
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From November 1st, 2021, LCH SA is proposing to extend the scope of
instruments eligible as collateral to the government bonds issued by
the following countries and denominated in their domestic currencies:
Australia, Canada, Denmark, Japan, Norway, Sweden and Switzerland.
As such, LCH SA needs to update its existing non-cash collateral
fee grid for both House and Client clearing activities. As mentioned
before, various factors are taken into consideration when defining the
fee to be charged for a given security. For this initiative, LCH SA has
considered a combination of elements such as the impossibility to use
these securities as collateral with the European Central Bank (ECB) for
liquidity management purposes, the relative appetite of the membership
for this new collateral and the operational costs and constraints that
the management of those securities create for the CCP (incl. their
impact on LCH SA Liquidity Coverage Ratio).
As specified in the fee grid attached [sic] as Exhibit 5, the
purpose of the Proposed Rule Change is to define the fee to be charged
for the new scope of eligible collateral (13bps for House and 10 bps
for Client clearing activities). The difference between the fee charged
for House versus Client collateral is mainly driven by commercial
reasons in consultation with CDSClear clearing members. Client clearing
of CDS is reasonably recent in Europe. Given the limited scope of CDS
instruments and categories of buy-side counterparties included in the
scope of the European Clearing Obligation for CDS, LCH SA believes that
expanding the list of eligible collateral as well as setting a more
attractive collateral fee for Clients of the CDSClear service will
incentivise further buy-side firms to clear a bigger share of their
Credit Derivatives portfolio.
No amendments to the LCH SA CDS Clearing Rules are required for
these changes to become effective.
2. Statutory Basis
Section 17A(b)(3)(D) of the Act requires that the rules of a
clearing agency provide for the equitable allocation of reasonable
dues, fees, and other charges.\7\
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\7\ 15 U.S.C. 78q-1(b)(3)(D).
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LCH SA believes that its clearing fee change proposal is consistent
with the requirements of Section 17A of the Act \8\ and the regulations
thereunder applicable to it, and in particular provides for the
equitable allocation of reasonable fees, dues, and other charges among
clearing members and market participants by ensuring that clearing
members and clients pay reasonable fees and dues for the services
provided by LCH SA, within the meaning of Section 17A(b)(3)(D) of the
Act.
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\8\ 15 U.S.C. 78q-1.
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As explained in our approved filing LCH SA-2021-002,\9\ contrary to
European government bonds, the new collateral scope is not eligible at
the ECB to be used as collateral against cash in Euros, which in turn
impacts how LCH SA monitors and manages its
[[Page 62575]]
liquidity resources. It therefore represents additional operational
costs that are amongst other things captured in the pricing difference.
That is why, the proposed fee change balances appropriately commercial
conditions and the impacts on the liquidity of the CCP induced by
additional non-euro denominated securities.
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\9\ Self-Regulatory Organizations; LCH SA; Order Approving
Proposed Rule Change Relating to Eligible Collateral and Liquidity
Risk Management, Exchange Act Release No. 34-93176 (Sept. 29, 2021);
86 FR 55061 (Oct. 5, 2021). File No. SR-LCH SA-2021-002.
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The fee charged to clients of LCH SA CDSClear service is unchanged
compared to existing securities as LCH SA wanted to preserve
consistency in the pricing for clients of LCH SA CDSClear service.
Additionally, today, CDSClear members and their clients mainly post
cash collateral currently and LCH SA does not foresee that the proposed
fee changes will alter current market practice amongst CDSClear's
members and clients or will have any material impact on CDSClear's
revenues. Indeed, the initiative is simply widening the list of
eligible collateral as well as setting the associated fee for the new
securities. It does not make any change to the fees charged on the
existing list of eligible collateral and as such won't impact at all
any of the current clearing members. Any clearing member wishing to
deposit newly added securities as collateral for LCH SA will be able to
do so knowing in advance the associated fee. Any clearing member not
wishing to use the new range of eligible collateral for whatever reason
will remain perfectly free to do so as well.
For all the reasons stated above, LCH SA believes that the proposed
fee rates are reasonable and have been set up at an appropriate level
given the costs, expenses and revenues generated to LCH SA in providing
these expanded collateral management services.
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.\10\
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\10\ 15 U.S.C. 78q-1(b)(3)(I).
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LCH SA does not believe that the proposed rule change would impose
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
LCH SA is offering the possibility for CDSClear members and clients
to post a greater scope of instruments as eligible margin collateral.
Additionally, the proposed fee change will apply equally to all
CDSClear clearing members and is not expected to have any potential
disparate outcomes on any of them. Finally, the fee rate changes will
not adversely affect the ability of such members or other market
participants generally to engage in cleared transactions or to access
LCH SA's clearing services.
Further, as explained above, LCH SA believes that the fee rates
have been set up at an appropriate level given the costs and expenses
to LCH SA in offering the relevant clearing services.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing proposed rule change has become effective upon filing
pursuant to Section 19(b)(3)(A) \11\ of the Act and Rule 19b-4(f)(2)
\12\ thereunder because it establishes a fee or other charge imposed by
LCH SA on its Clearing Members. At any time within 60 days of the
filing of the proposed rule change, the Commission summarily may
temporarily suspend such proposed rule change if it appears to the
Commission that such action is necessary or appropriate in the public
interest, for the protection of investors, or otherwise in furtherance
of the purposes of the Act.
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>) or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#3c4e495059115f5351515952484f7c4f595f125b534a"><span class="__cf_email__" data-cfemail="4f3d3a232a622c2022222a213b3c0f3c2a2c61282039">[email protected]</span></a>. Please include
File Number SR-LCH SA-2021-003 on the subject line.
Paper Comments
<bullet> 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-2021-003. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of such filings will also be available for inspection
and copying at the principal office of LCH SA and on LCH SA's website
at <a href="https://www.lch.com/resources/rulebooks/proposed-rule-changes">https://www.lch.com/resources/rulebooks/proposed-rule-changes</a>. All
comments received will be posted without change. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-LCH SA-2021-003 and should
be submitted on or before December 1, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-24528 Filed 11-9-21; 8:45 am]
BILLING CODE 8011-01-P
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