Notice2024-06580
Self-Regulatory Organizations; LCH SA; Notice of Filing of Proposed Rule Change Relating to the CDSClear Select Membership Model
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
March 28, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 61 (Thursday, March 28, 2024)</title>
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[Federal Register Volume 89, Number 61 (Thursday, March 28, 2024)]
[Notices]
[Pages 21579-21584]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-06580]
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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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
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\
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\3\ The CDSClear fee grid is available on LCH SA's website at
the following link: <a href="https://www.lch.com/services/cdsclear/fees">https://www.lch.com/services/cdsclear/fees</a>.
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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\
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\4\ 15 U.S.C. 78q-1(b)(3)(B).
\5\ 15 U.S.C. 78q-1(b)(3)(F).
\6\ Id.
\7\ Id.
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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.
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\8\ See Section 1.1.1. (``Terms defined in the CDS Clearing Rule
Book'') of the CDSClear Rule Book. <a href="https://www.lch.com/system/files/media_root/CDSClear_Rule_Book_26.09.2023.pdf">https://www.lch.com/system/files/media_root/CDSClear_Rule_Book_26.09.2023.pdf</a>.
\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 (<a href="http://lch.com">lch.com</a>).
\12\ Id.
\13\ 15 U.S.C. 78q-1(b)(3)(B).
\14\ 15 U.S.C. 78q-1(b)(3)(F).
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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\
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\15\ 17 CFR 240.17Ad-22(e)(1).
\16\ Id.
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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\
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\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).
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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\
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\21\ 17 CFR 240.17Ad-22(e)(18).
\22\ Id.
\23\ Id.
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B. Clearing Agency's Statement on Burden on Competition
Section 17A(b)(3)(I) of the Act requires that the rules of a
clearing agency not impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act.\24\
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\24\ 15 U.S.C. 78q-1(b)(3)(I).
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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
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>) or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#b5c7c0d9d098d6dad8d8d0dbc1c6f5c6d0d69bd2dac3"><span class="__cf_email__" data-cfemail="c7b5b2aba2eaa4a8aaaaa2a9b3b487b4a2a4e9a0a8b1">[email protected]</span></a>. Please include
file number SR-LCH SA-2024-002 on the subject line.
Paper Comments
<bullet> 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 (<a href="https://www.sec.gov/rules/sro.shtml">https://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
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 <a href="http://www.lch.com/resources/rules-and-regulations/proposed-rule-changes-0">http://www.lch.com/resources/rules-and-regulations/proposed-rule-changes-0</a>.
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\
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\45\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-06580 Filed 3-27-24; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on March 28, 2024.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.