[Federal Register Volume 82, Number 168 (Thursday, August 31, 2017)]
[Notices]
[Pages 41438-41446]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-18450]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81487; File No. SR-LCH SA-2017-006]


Self-Regulatory Organizations; LCH SA; Notice of Filing of 
Proposed Rule Change Relating to Options on Index Credit Default Swaps

August 25, 2017.
    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, August 18, 2017, Banque Centrale de Compensation, which conducts 
business under the name LCH SA (``LCH SA''), filed with the Securities 
and Exchange Commission (``Commission'') the proposed rule change 
described in Items I, II, and III below, which Items have been prepared 
primarily by LCH SA. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    LCH SA is proposing to amend its (i) CDS Clearing Rule Book (the 
``Rule Book''), (ii) CDS Clearing Supplement (the ``Clearing 
Supplement''), (iii) CDS Clearing Procedures (the ``Procedures''), and 
(iv) CDS Dispute Resolution Protocol (the ``Dispute Resolution 
Protocol''), to incorporate terms and to make conforming and clarifying 
changes to allow options on index credit default swaps (``CDS'') to be 
cleared by LCH SA.\3\
---------------------------------------------------------------------------

    \3\ Capitalized terms used but not defined herein shall have the 
meaning specified in the Rule Book, Clearing Supplement, Procedures, 
and Dispute Resolution Protocol, as applicable.
---------------------------------------------------------------------------

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, LCH SA included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. LCH SA has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of these statements.

A. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to revise LCH SA's rules 
and procedures to allow LCH SA to clear options on index CDS. An option 
on index CDS is a contract that gives the option buyer the right (and 
not the obligation) to enter into a specified index CDS contract (i.e., 
the underlying) with the option seller at a predefined exercise price 
called the strike. Upon the launch of clearing options on index CDS, 
LCH SA will provide central counterparty services for options on index 
CDS that are accepted for clearing and become the option seller for 
each option buyer and the option buyer for each option seller with 
respect to an option on index CDS novated by LCH SA.
    The terms of the option contract on index CDS will provide the 
buyer the right to sell or buy protection on the underlying index CDS 
at expiry of the option. The index CDS resulting from the exercise of 
the option will be automatically cleared by LCH SA as the central 
counterparty. A credit event (including a restructuring event) may 
occur with respect to a constituent of an underlying index. If the 
credit event occurs before the option expiry, such credit event may 
affect the option buyer's decision regarding whether to exercise the 
option upon expiry. On the other hand, if a credit event occurs after 
the buyer has exercised the option, a cleared index CDS contract has 
been created from the option exercise and the situation would be the 
same as a credit event occurring to any other index CDS contract 
currently cleared by LCH SA.
    Initially, LCH SA proposes to include European index CDS currently 
cleared by CDSClear as the underlying, i.e., CDS on Markit iTraxx 
Europe Index and iTraxx Crossover Index, and may subsequently extend 
the underlying to include other index CDS contracts cleared by LCH SA, 
such as CDS on iTraxx Senior Financial Index, CDX NA IG, and CDX NA HY, 
subject to additional regulatory approvals, if necessary.
    Each of the changes is described in further detail below.

[[Page 41439]]

i. Rule Book
a. Changes to Definitions
    The Rule Book would be amended to add several new defined terms in 
order to accommodate the addition of options on index CDS to LCH SA's 
CDSClear services. Specifically, LCH SA proposes to add a definition 
for ``Index Swaptions'' as transactions which give the buyer the right 
to enter into a CDS referencing a portfolio of Reference Entities 
specified in a CDS index with a seller. The defined term ``Index 
Swaption Buyer'' would be added in the Rule Book to mean a Clearing 
Member that is party to an Index Swaption Cleared Transaction as buyer, 
and the term ``Index Swaption Seller'' would be added in the Rule Book 
to mean a Clearing Member that is party to an Index Swaption Cleared 
Transaction as seller. The defined term ``Index Swaption Cleared 
Transaction'' would be added in the Rule Book, and defined by reference 
to the Supplement (described below), to mean a Cleared Transaction 
which gives Swaption Buyer the right to enter into a specified 
Underlying Index Transaction with Swaption Seller. The term ``Index 
Swaption Cleared Transaction Confirmation'' would also be added to the 
Rule Book, and defined by reference to the Clearing Supplement, to mean 
for any Index Swaption Cleared Transaction in respect of which the 
Underlying Index Transaction references a Series and versions of the 
Markit iTraxx Europe Index, the form of confirmation which incorporates 
the iTraxx Swaption Standard Terms Supplement, as completed by 
reference to the relevant transaction, or such other form confirmation 
as may be adopted from time to time in accordance with the terms of the 
Rule Book. For the avoidance of doubt, the extension of the CDS 
Clearing Service to the clearing of swaptions referencing indices other 
than the Markit iTraxx Europe Index would require additional amendments 
to the CDS Clearing Supplement. Amendments to the to the Rule Book, the 
Procedures, and other risk methodology documentation could also be 
required to reflect risk changes applicable to the clearing of such new 
products. The defined term ``Index Swaption Clearing Service'' would be 
added to refer to the CDS Clearing Service to which a Clearing Member 
would elect to be registered under in order to be permitted to submit 
Index Swaptions for clearing by LCH SA. The term ``Premium'' would also 
be added to the Rule Book and defined by reference to the 2006 
International Swaps and Derivatives Association (``ISDA'') definitions, 
which are also incorporated into the Rule Book definitions, to describe 
the premium paid in respect of Index Swaptions and, relatedly, Article 
1.2.9.2 would be modified to specify that the payment of ``Premium'' to 
the relevant Index Swaption Seller is within the scope of obligations 
that LCH SA undertakes to perform as central counterparty.
    Definitions for ``CDS Intraday Transaction,'' which would mean a 
CDS which has been entered into between two ATSS Participants and 
submitted for clearing through an Approved Trade Source System, and 
``Index Swaption Intraday Transaction,'' which would mean an Index 
Swaption which has been entered into between two ATSS Participants and 
submitted for clearing through an Approved Trade Source System, would 
be added to clarify the distinction for the novation process applicable 
to CDS Intraday Transactions and Index Swaption Intraday Transactions 
set forth in Article 3.1.6.1 (described below).
    The term ``Exercise Cleared Transaction'' would be added to the 
Rule Book, and defined by reference to the Clearing Supplement, to mean 
each Index Swaption Cleared Transaction (including each Swaption 
Restructuring Cleared Transaction, as applicable) forming part of a 
matched pair as part of the creation of a Cleared Transaction in the 
context of the exercise process. A definition for ``Swaption 
Restructuring Cleared Transaction'' would be added to the Rule Book, 
and defined by reference to the Clearing Supplement, to mean a Cleared 
Transaction created as a result of a Restructuring Credit Event. The 
term ``Exercise Notice'' would also be added to the Rule Book, and 
defined by reference to the Clearing Supplement, as the notice of 
exercise (in whole or in part) given by the Swaption Buyer to the 
Swaption Seller in accordance with Section 13.2 (Procedure for 
Exercise) of the 2006 Definitions. The term ``EMP Creation Period'' 
would be added to the Rule Book, and defined by reference to the 
Clearing Supplement, to mean the period from (and including) the final 
Transaction Business Day of the calendar week immediately preceding the 
week in which the Expiration Date falls to (but excluding) the 
Transaction Business Day immediately preceding the Expiration Date.
    The Rule Book would also include a reference for the definition of 
``Swaption Type,'' which, as defined in the Clearing Supplement, would 
mean a class of Index Swaption Cleared Transactions that are identical 
as to their terms (including, without limitation, as to the terms of 
the Underlying Index Transaction to which such Index Swaption Cleared 
Transactions relates), except in respect of trade date, notional 
amount, Premium, and Premium Payment Date and identity of the relevant 
Swaption Buyer and Swaption Seller.
    The definition of ``LCH Settlement Price'' would be added to the 
Rule Book to account for the end-of-day pricing procedures added for 
Index Swaptions, as described below.
    The substance of certain existing defined terms in the Rule Book 
would also be modified to incorporate terms for Index Swaptions. The 
definitions of ``CCM Cleared Transaction'' (i.e., a CDS or an Index 
Swaption between LCH SA and a CCM acting either in its own name and for 
its own account (in respect of a House Cleared Transaction) or as 
commissionaire in its own name and for the account of a Client (in 
respect of a Client Cleared Transaction)) and ``FCM Cleared 
Transaction'' (i.e., A CDS or an Index Swaption between LCH SA and an 
FCM Clearing Member as agent for the account of an FCM Client 
registered in the relevant FCM Client Trade Account of such FCM 
Clearing Member, or as principal for its own account, registered in the 
FCM House Trade Account of such FCM Clearing Member), would be amended 
to make clear that a CCM Cleared Transaction or an FCM Cleared 
Transaction, in addition to a CDS, would include an Index Swaption 
between LCH SA and a CCM or FCM Clearing Member, as applicable. The 
definition has been also amended to specify that a CCM Cleared 
Transaction or an FCM Cleared Transactions could also result from the 
creation of (x) an ``Exercise Cleared Transaction'' or (y) a ``Swaption 
Restructuring Cleared Transaction,'' as described above. The definition 
of ``End of Day Contributed Price'' would be amended to distinguish end 
of day pricing for CDS (which is based upon, among other things, price/
spread data provided by the Index Publisher) and Index Swaptions (which 
would be based upon, among other things, a clearing price determined by 
LCH SA), as described below. The definition of ``House Trade Leg'' 
would be amended to include any trade leg of an Index Swaption in 
respect of which a Clearing Member acts as Index Swaption buyer or 
Index Swaption seller. Similarly, the definition of ``Client Trade 
Leg'' would be modified to include any trade leg of an Index Swaption 
in respect of which a Client acts as Index Swaption buyer or Index 
Swaption seller.
    The following defined terms in Chapter 1, Section 1.1.1 would also 
include conforming changes for Index

[[Page 41440]]

Swaptions: ``Cash Payment,'' ``CDS Buyer,'' ``CDS Clearing 
Documentation,'' ``CDS Clearing Service,'' ``CDS Client Clearing 
Agreement,'' ``CDS Client Clearing Services,'' ``CDS Seller,'' 
``Extreme Market Developments,'' ``Index Publisher,'' ``Intraday 
Transaction,'' and ``Payment Failure,'' and ``Product Family.''
    In addition to the foregoing changes, various other conforming and 
clarifying changes would be made throughout Title I (General Provisions 
& Legal Framework) to incorporate terms to accommodate Index Swaptions. 
Those conforming and clarifying changes are set forth in Articles 
1.0.1.1, 1.0.1.3, 1.1.2.1, 1.1.3.8, 1.1.3.9, 1.2.2.6, 1.2.2.11, 
1.2.9.2, 1.2.12.2, and 1.2.14.2.
    Separately, to provide additional clarification in respect of the 
cross-border aspects of its operations, LCH SA also proposes to include 
a definition for ``U.S. CCM'' to mean a CCM that is not a Non-U.S. CCM. 
A ``Non-U.S. CCM,'' in turn, would be defined as a CCM that engages in 
securities business activities solely outside the United States, its 
territories or possessions (except as otherwise permitted under SEC 
regulation without triggering a requirement to be registered as a 
``broker'' or ``dealer'' under the Exchange Act) or, in the context of 
a Transaction that is not a security-based swap, a CCM that is 
organized under the laws of, or has its main center of business located 
in, a jurisdiction other than the United States, its territories or 
possessions. LCH SA also proposes to amend the definition of ``U.S. CCM 
Client'' to mean a CCM Client that is not a Non-U.S. CCM Client. A 
``Non-U.S. CCM Client'' would mean a CCM Client that is organized under 
the laws of, or has its main center of business located in, a 
jurisdiction other than the United States, its territories or 
possessions.
    Finally, certain other changes to the following terms would be made 
to correct existing inconsistencies or to make clarifications: ``Bank 
Recovery and Resolution Directive,'' ``Delegation'', ``Insolvency 
Proceeding'' and ``Settlement Finality Directive.''
b. Membership
    Article 2.2.0.4 would be amended and Article 2.2.0.6 would be added 
to specify the procedures for an Applicant to register for the Index 
Swaption Clearing Service. Article 2.2.0.4 would be amended to reflect 
that the Product Family Form of a Select Member may be updated in 
accordance with Clause 6.1 of the CDS Default Management Process, as 
described below. Article 2.2.0.6 would also provide that an Applicant 
or existing Clearing Member may elect to register for, or terminate its 
registration from, the Index Swaption Clearing Service and, if 
applicable, that such registration will be deemed to occur in 
accordance with Clause 6.1 of the CDS Default Management Process. As a 
result of the addition of Index Swaptions, LCH SA also proposes to make 
conforming changes to Article 2.2.1.1 to reflect the addition of the 
Index Swaption Clearing Service.
c. Novation of Contracts
    Article 3.1.6.1 would be amended to add a new Article 3.1.6.1(iv) 
to describe the novation process in respect of Original Transactions 
that are Index Swaption Intraday Transactions. Specifically, Article 
3.1.6.1(iv) would provide that each Original Transaction which is an 
Index Swaption Intraday Transaction will be replaced by two Cleared 
Transactions: (a) A Cleared Transaction entered into between LCH SA 
(acting as Index Swaption seller in respect of such Cleared 
Transaction) and either: (x) In the event the Index Swaption buyer of 
the Original Transaction is a Clearing Member, such Clearing Member 
(acting as Index Swaption Buyer in respect of such Cleared 
Transaction); or (y) in the event the Index Swaption buyer of the 
Original Transaction is a Client, the relevant Nominated Clearing 
Member (acting as Index Swaption Buyer in respect of such Cleared 
Transaction), as applicable; and (b) a Cleared Transaction entered into 
between LCH SA (acting as Index Swaption buyer in respect of such 
Cleared Transaction) and either: (x) In the event the Index Swaption 
seller of the Original Transaction is a Clearing Member, such Clearing 
Member (acting as Index Swaption Seller in respect of such Cleared 
Transaction); or (y) in the event the Index Swaption seller of the 
Original Transaction is a Client, the relevant Nominated Clearing 
Member (acting as Index Swaption Seller in respect of such Cleared 
Transaction), as applicable. Various other conforming and clarifying 
changes would also be made Article 3.1.6.1 to add references for Index 
Swaptions. Existing Article 3.1.6.1(iv) would be renumbered as 
3.1.6.1(v).
    Article 3.1.6.4 currently provides that LCH SA will be entitled to 
assume that certain events (such as delivery of a Credit Event Notice 
or Notice of Physical Settlement) have not occurred prior to novation 
because these events would terminate a constituent of the index 
underlying the CDS contract submitted for clearing; similarly, it would 
be amended to clarify that such events include Notices to Exercise 
Movement Option and Exercise Notices with respect to Index Swaptions 
because delivery of such notices would signify expiry of the option 
contract submitted for clearing.
    Article 3.2.2.3 would clarify that LCH SA would calculate a 
Clearing Member's Open Positions by netting Cleared Transactions of the 
same type, including the same Swaption Type, as applicable. Article 
3.3.1.3 would be amended to clarify that following a Restructuring 
Credit Event, LCH SA may compress Index Swaption Cleared Transactions 
to result in one or more Cleared Transaction(s) per Swaption Type and 
to provide that during an EMP Creation Period, LCH SA may compress 
Index Swaption Cleared Transactions to result in one or more Exercise 
Cleared Transactions. Article 3.3.1.4 similarly would be amended to 
clarify that compression of Cleared Transactions would be done in the 
same CDS Type or Swaption Type, as applicable. Article 3.3.1.7, which 
also relates to compression, would be amended to specify that Premiums 
in respect of Index Swaptions will be netted and the Premiums for the 
Cleared Transactions resulting from the compression shall be determined 
by reference to the Cleared Transactions that were compressed.
    Finally, LCH SA also would make conforming changes and corrections 
to Articles 3.1.6.8 and 3.1.10.7.
d. End of Day Pricing Determination
    Section 4.2.7, which sets forth the procedures for calculating and 
using end of day pricing, would be amended to incorporate procedures 
for calculating end of day pricing for Index Swaptions. Article 4.2.7.1 
would preserve the existing ``Markit LCH Settlement Price'' as the 
price/spread used to calculate the settlement prices for Index Cleared 
Transactions and Single Name Cleared Transactions on either an end of 
day or intra-day basis and add that LCH SA will use the ``LCH 
Settlement Price'' for purposes of calculating any risk calculation, 
valuing a Clearing Member's Open Positions and calculating a Clearing 
Member's Margin Requirements in respect of Index Swaptions. Article 
4.2.7.2 would be amended to authorize each Clearing Member to use the 
``LCH Settlement Price'' in respect of Index Swaptions in the same 
manner that Clearing Members are authorized to use the Markit LCH 
Settlement Price. Articles 4.2.7.3, which includes a disclaimer of 
warranties and liabilities as to End of Day Contributed Prices, and 
Article 4.2.7.5, which provides that End of Day Contributed Prices are 
accepted ``as is,'' would each be amended to make clear that the

[[Page 41441]]

disclaimers and limitations therein also apply to the LCH Settlement 
Price in respect of Index Swaptions. Article 4.2.7.6 would be amended 
to keep the Index Publisher as an intended third party beneficiary of 
Article 4.2.7.1 and Article 4.2.7.5 but only in respect of the Markit 
LCH Settlement Prices, not the newly-added LCH Settlement Prices that 
are calculated by LCH SA.
    Articles 4.2.7.7 and 4.2.7.8 would also be amended to incorporate 
references for Index Swaptions and Article 4.2.7.5 would include a 
minor clarifying change for readability.
e. Client Clearing Service
    Article 5.1.1.3, which constitutes the Mandatory Client Clearing 
Provisions, would be amended to incorporate references to Index 
Swaption Seller and Index Swaption Buyer along with references to CDS 
Buyer and CDS Seller. Other clarifications and corrections would also 
be made in Article 5.1.1.3, Article 5.1.2.2, and Article 6.1.1.3.
    Article 6.4.1.1 would include one conforming change to clarify that 
Index Swaptions may be transferred in the same manner as CDS if, at any 
time, a liquidation date exists.
f. Default Management Process
    Appendix 1 of the Rule Book sets forth the process in accordance 
with which LCH SA and its Default Management Group will manage the 
default of a Clearing Member (the ``CDS Default Management Process''). 
The CDS Default Management Process would be amended in various places 
to incorporate terms for Index Swaptions. Clause 5.4.1 of the CDS 
Default Management Process, which provides for the scope of the 
requirement to participate in the competitive auction process for a 
Defaulting Clearing Member's transactions, would be amended to provide 
that an Auction Participant that is not registered for the Index 
Swaption Clearing Service is not required to participate in Competitive 
Bidding for an Auction Package containing any Index Swaption Cleared 
Transactions. Clause 6.1.2 of the CDS Default Management Process would 
be amended to establish the procedures for registering winning bids 
that are Index Swaptions so that if a Clearing Member is not currently 
registered for the Index Swaption Clearing Service, the Clearing Member 
will become automatically registered for the Index Swaption Clearing 
Service and its Product Family forms will be updated in accordance with 
Article 3.1.6.8 of the Rule Book. Clause 11.2.2 of the CDS Default 
Management Process would be amended to provide that of the five 
different members appointed as the CDS Default Management Group, at 
least two Clearing Members shall be registered for the Index Swaption 
Clearing Service.
    Additional conforming and clarifying changes would also be made in 
the CDS Default Management Process Three defined terms, ``Invoice 
Back,'' ``Product Cash Payments'' and ``Transaction Categories,'' would 
be amended to incorporate terms for Index Swaptions. Clause 5.6.3 of 
the CDS Default Management Process would be amended to clarify the 
calculation for adjusting the Initial Allocation Price and the 
allocation of the Auction Package in the event where the aggregate of 
each Non Bidder's Auction Non Bidder Bid Size is equal to or greater 
than 100. Clause 8.3 of the CDS Default Management Process would also 
be amended to incorporate terms for Index Swaptions.
ii. Clearing Supplement
    A new Part C would be added to the Clearing Supplement, to provide 
the terms of Index Swaption Cleared Transactions. The Index Swaption 
contracts would be based on the form of confirmation incorporating the 
iTraxx Swaption Standard Terms Supplement and reference the 2014 ISDA 
Credit Derivatives Definitions and the 2006 Definitions, with certain 
modifications. The Clearing Supplement is the document which sets forth 
the economic terms of the transactions cleared by LCH SA and the new 
Part C, in particular, would detail the economic terms that are 
particular to Index Swaption Cleared Transactions.
a. General Provisions
    Section 1 of Part C sets forth general provisions of Index Swaption 
Cleared Transactions, including incorporation of defined terms by 
reference, definitions of capitalized terms, resolution of 
inconsistencies or conflicts between the documents governing Index 
Swaptions, timing references, third party rights, recording, and 
application of the CDS Clearing Supplement to FCM Clearing Members with 
respect to client transactions.
b. Terms of Cleared Transactions
    Section 2 of Part C would provide for the creation of Index 
Swaption Cleared Transactions, Swaption Restructuring Cleared 
Transactions, and Exercise Cleared Transactions. As described above, an 
Index Swaption Cleared Transaction is a Cleared Transaction, the terms 
of which are as evidenced by an Index Swaption Cleared Transaction 
Confirmation, which gives Swaption Buyer the right to enter into a 
specified Underlying Index Transaction with Swaption Seller. A Swaption 
Restructuring Cleared Transaction, in turn, is an Index Swaption 
Cleared Transaction forming part of an Swaption Restructuring Matched 
Pair, meaning a set of transactions created by LCH SA as a result of an 
ISDA Determinations Committee announcement of the occurrence of an 
M(M)R Restructuring Credit Event (as defined in the ISDA Credit 
Definitions) for a Reference Entity referenced by such Underlying Index 
Transaction. An Exercise Cleared Transaction is an Index Swaption 
Cleared Transaction (including each Swaption Restructuring Cleared 
Transaction, as applicable) forming part of an Exercise Matched Pair, 
meaning a set of transactions created by LCH SA as a result of LCH SA's 
matching process, as described below. Upon the novation of an Original 
Transaction which is an Index Swaption or the creation of a Swaption 
Restructuring Cleared Transaction or an Exercise Cleared Transaction, 
Section 2 of Part C provides that each resulting Index Swaption Cleared 
Transaction and each such Swaption Restructuring Cleared Transaction 
and Exercise Cleared Transaction is then entered into by LCH SA and the 
relevant Clearing Member on the terms of the related Index Swaption 
Cleared Transaction Confirmation.
    As noted above, an Index Swaption Cleared Transaction would be 
evidenced by an Index Swaption Cleared Transaction Confirmation, which, 
for an Underlying Index Transaction that references a Series of the 
Markit iTraxx[supreg] Europe Index, would be in the form of 
confirmation which incorporates the iTraxx[supreg] Swaption Standard 
Terms Supplement. Section 2 of Part C would make certain modifications 
to such form of confirmation to specify, for example, that the Index 
Swaption Cleared Transaction is between LCH SA and the Clearing Member, 
that the confirmation supplements and forms part of, and is subject to, 
the CDS Clearing Documentation, that LCH SA is the calculation agent 
for purposes of the transaction, and that LCH SA will be the central 
counterparty for each Index Swaption Cleared Transaction. The Index 
Swaption Cleared Transaction Confirmation would also provide additional 
terms regarding termination of the Swaption Transaction on the 
Expiration Date.
    Section 2 of Part C also specifies procedures for compression 
exercises for Index Swaption Cleared Transactions. In addition, certain 
amendments to the 2014 ISDA Credit Derivatives Definitions would be 
made

[[Page 41442]]

in order to enable LCH SA to designate a designee for delivering or 
receiving Credit Event Notices or Notices to Exercise Movement Option 
relating to an M(M)R Restructuring Credit Event.
c. Payments
    Section 3 of Part C would set forth the payment obligations of each 
of LCH SA and each Clearing Member as well as the requirement to pay 
Premiums in respect of Index Swaption Cleared Transactions. Section 3.1 
of Part C would provide that each of LCH SA and each Clearing Member 
will make each payment specified under the terms of each Cleared 
Transaction to be made by it, subject to the other provisions of the 
CDS Clearing Documentation and that payments under any Cleared 
Transaction will be made on the due date for value on that date in the 
place of the account specified for the relevant party in the CDS 
Admission Agreement (or such other account as may be designated by it 
from time to time). Section 3.2 of Part C would provide that if the 
Premium is due and payable under the terms of an Original Transaction 
on or before the Clearing Day on which the related Index Swaption 
Cleared Transactions are created by novation, such amount would be 
payable under and in accordance with the terms of such Original 
Transaction. If the Premium Payment Date of an Original Transaction 
would be a date falling after the Clearing Day on which the Index 
Swaption Cleared Transactions related to such Original Transaction are 
created by novation, then the corresponding Premium Payment Date for 
the related Index Swaption Cleared Transactions shall occur on the 
Transaction Business Day which is also a Clearing Day immediately 
following the Clearing Day on which such related Index Swaption Cleared 
Transactions are created and the Index Swaption Cleared Transaction 
Confirmation shall be deemed to have been amended accordingly.
d. Credit Event and Succession Events
    Section 4 of Part C would outline the requirements and procedures 
in the event of a Credit Event, Succession Event or M(M)R Restructuring 
Credit Event. With respect to Credit Events and Succession Events, 
Section 4.1 of Part C would provide that LCH SA (in its capacity as 
Calculation Agent with respect to such Cleared Transaction) will not 
make any determinations pursuant to the 2014 ISDA Credit Definitions on 
substituting reference obligations or which may be subject to successor 
resolutions of the ISDA Determinations Committee Rules and that neither 
LCH SA nor any Clearing Member shall be entitled to deliver a Successor 
Notice or a Credit Event Notice (other than Credit Event Notices in 
relation to an M(M)R Restructuring Credit Event, as described below). 
With respect to an M(M)R Restructuring Credit Event, Section 4.2 of 
Part C would provide that upon an ISDA Determinations Committee Credit 
Event Announcement of an M(M)R Restructuring Credit Event, LCH SA will 
publish and make available to Clearing Members a timeline in respect of 
the relevant Credit Event and related Cleared Transactions for which 
the Underlying Index Transaction references the affected Reference 
Entity, to notify, among other things, the relevant Novation Cut-off 
Date, Compression Cut-off Date and First Novation Date. Any such 
timeline may be subject to subsequent amendment by LCH SA, however, by 
means of a Clearing Notice to Clearing Members, to reflect subsequent 
ISDA Determinations Committee resolutions, timing provisions of any 
relevant Transaction Auction Settlement Terms, or in each case any 
subsequent amendments thereto. To the extent that an ISDA 
Determinations Committee Announcement is reversed, Section 4.3 of Part 
C would require LCH SA to calculate and LCH SA would be entitled to 
call for margin and/or be obliged to return margin with respect to each 
Clearing Member.
e. Restructuring
    Section 5 of Part C, entitled Restructuring, would set forth the 
requirements and procedures for the creation of Swaption Restructuring 
Matched Pairs, the triggering and partial triggering of Swaption 
Restructuring Cleared Transactions, and the notification requirements 
in respect of Swaption Restructuring Matched Pairs. Specifically, 
Section 5.1 of Part C would provide that following the occurrence of an 
ISDA Determinations Committee Announcement in respect of an M(M)R 
Restructuring Credit Event in respect of a Reference Entity referenced 
by the Underlying Index Transaction to which a set of Index Swaption 
Cleared Transactions of the same Swaption Type relates, LCH SA will 
create (on one or more occasions) Swaption Restructuring Matched Pairs 
and each such Swaption Restructuring Matched Pair shall be composed of 
two Swaption Restructuring Cleared Transactions.
    Under Section 5.2 of Part C, where two or more Index Swaption 
Cleared Transactions have been combined into a single transaction as 
part of the matching process and/or where any Index Swaption Cleared 
Transaction has been split into two or more separate transactions as 
part of the matching process, the relevant original Index Swaption 
Cleared Transactions entered into by each Clearing Member with LCH SA 
will be deemed terminated and new Swaption Restructuring Cleared 
Transactions of the same Swaption Type will be deemed to be entered 
into between each such Clearing Member and LCH SA, with each such 
Swaption Restructuring Cleared Transaction having a Swaption Notional 
Amount (and with the Underlying Index Transaction in respect of each 
such Swaption Restructuring Cleared Transaction having an Original 
Notional Amount) corresponding to the Swaption Restructuring Matched 
Pair Amount of the Swaption Restructuring Matched Pair in which the 
relevant Clearing Member is comprised as a Matched Buyer or a Matched 
Seller, as applicable.
    Section 5.3 of Part C would provide when a Clearing Member may 
deliver Credit Event Notices (as CDS Buyer or CDS Seller) in relation 
to an M(M)R Restructuring Credit Event. Section 5.4 of Part C would 
address a partial triggering of a Swaption Restructuring Cleared 
Transaction. Section 5.5 of Part C would specify the requirements for 
delivering a Notice to Exercise Movement Option. Section 5.6 would set 
forth the effect of Credit Event Notices and Notices of Exercise 
Movement Options, providing that a Matched Buyer and Matched Seller 
shall have no payment or delivery obligations in respect of the M(M)R 
Restructuring Credit Event as a result of the delivery of a Credit 
Event Notice or Notice to Exercise Movement Option. Such payment and 
delivery obligations shall instead arise under the Restructuring 
Cleared Transactions created following exercise (if applicable). 
Section 5.7 of Part C would outline the procedures upon the reversal of 
an ISDA Determinations Committee M(M)R Restructuring Credit Event 
announcement. Section 5.8 of Part C would set forth the reports that 
LCH SA would deliver to relevant Clearing Members as a result of an 
M(M)R Restructuring Credit Event. Finally, Section 5.9 of Part C would 
set forth the procedures applicable upon the expiry of the CEN 
Triggering Period (i.e., the period during which the parties to the 
Swaption Restructuring Cleared Transaction of a Swaption Restructuring 
Matched Pair may deliver a Credit Event Notice in relation to the 
relevant M(M)R Restructuring Credit Event).

[[Page 41443]]

f. Exercise Matched Pairs
    Section 6 of Part C would address the exercise of Matched Pairs, 
including the creation and notification of Exercise Matched Pairs, the 
creation of Exercise Cleared Transactions, the delivery of Exercise and 
Abandonment Notices, and Cleared Transaction Exercise Reports.
    On each Transaction Business Day during the EMP Creation Period 
(i.e., the period from (and including) the final Transaction Business 
Day of the calendar week immediately preceding the week in which the 
Expiration Date falls to (but excluding) the Transaction Business Day 
immediately preceding the Expiration Date), LCH SA will create Exercise 
Matched Pairs for a set of Index Swaption Cleared Transactions of the 
same Swaption Type, and each such Exercise Matched Pair shall be 
composed of two Exercise Cleared Transactions. Upon the creation of an 
Exercise Matched Pair, LCH SA will then notify the relevant Matched 
Buyer and Matched Seller comprised within each Exercise Matched Pair 
of: (i) The identity of the other Clearing Member of such Exercise 
Matched Pair; and (ii) the associated Exercise Matched Pair Amount. 
Section 6.1 of Part C would also provide that if Swaption Restructuring 
Matched Pairs have previously been created, then such Swaption 
Restructuring Matched Pairs and the Swaption Restructuring Cleared 
Transactions from which they are formed shall also automatically 
constitute Exercise Matched Pairs and Exercise Cleared Transactions (in 
addition to being Swaption Restructuring Matched Pairs and Swaption 
Restructuring Cleared Transactions) for the purposes of the Clearing 
Supplement.
    Section 6.2 of Part C provides that upon the notification to the 
relevant Clearing Members of Exercise Matched Pairs, where two or more 
Index Swaption Cleared Transactions have been combined into a single 
transaction as part of the matching process and/or where any Index 
Swaption Cleared Transaction has been split into two or more separate 
transactions as part of the matching process, the relevant original 
Index Swaption Cleared Transactions entered into by each Clearing 
Member with LCH SA will be deemed terminated and new Exercise Cleared 
Transactions of the same Swaption Type will be deemed to be entered 
into between each such Clearing Member and LCH SA.
    Section 6.3 of Part C would provide that Exercise Notices will be 
delivered by Swaption Buyers to Swaption Sellers and that any Exercise 
Notice delivered in respect of an Exercise Matched Pair for an amount 
which is greater than the related Exercise Matched Pair Notional Amount 
shall be ineffective as to such excess.
    Section 6.4 of Part C would provide that if on the Expiration Date 
Swaption Buyer delivers a valid Abandonment Notice to Swaption Seller, 
then upon delivery of such notice each Exercise Cleared Transaction 
specified in such Abandonment Notice shall be terminated in whole and 
no further amounts shall become due and payable by Swaption Buyer to 
Swaption Seller or vice versa in respect of such Exercise Transaction.
    Finally, Section 6.5 of Part C would provide that LCH SA will 
communicate to the relevant Clearing Members, on the basis of 
information received from Clearing Members the aggregate Swaption 
Notional Amounts of Exercise Cleared Transactions to which they are a 
party as Swaption Buyer in respect of which Exercise Notices and 
Abandonment Notices have been delivered and the aggregate Swaption 
Notional Amounts of Exercise Cleared Transactions to which they are a 
party as Swaption Seller in respect of which Exercise Notices and 
Abandonment Notices have been delivered, in each case on an ongoing 
basis on the Expiration Date.
g. Settlement
    Section 7 of Part C would address settlement, providing that 
following Exercise, an Index Cleared Transaction shall be deemed to 
have been entered into between each Clearing Member and LCH SA on the 
terms of the Underlying Index Transaction to which the relevant 
Exercise Cleared Transactions relates and evidenced by an Index Cleared 
Transaction Confirmation. Following the creation of such Index Cleared 
Transaction and any Initial Single Name Cleared Transaction(s) and 
Restructuring Cleared Transaction(s), the Exercise Cleared Transaction 
from which it was created shall be terminated. Section 7 would also 
provide procedures for the creation of Single Name Cleared Transactions 
following a Credit Event as well as creation of Restructuring Cleared 
Transactions following an M(M)R Restructuring Credit Event.
h. Notices
    Section 8 of Part C would provide for general rules relating to 
notices, including the methods of delivery of various notices and the 
timing of delivery for such notices.
i. Matched Pair Designations
    Section 9 of Part C would outline the procedures for the creation 
of Matched Pairs, the registration of new Swaption Restructuring 
Cleared Transactions and Exercise Cleared Transactions, resetting of 
Swaption Trade Dates, the exercise of rights by Matched Buyers and 
Matched Sellers, and Matched Pairs with the same clearing member. 
Section 9.1 of Part C would provide that LCH SA will create Matched 
Pairs using a matching procedure that matches Swaption Sellers with 
Swaption Buyers pursuant to an algorithm. Section 9.2 of Part C would 
address the registration of Swaption Restructuring Cleared Transactions 
and Exercise Cleared Transactions and removal of original Index 
Swaption Cleared Transactions in accordance with DTCC Rules. Section 
9.3 of Part C would provide the circumstances under which LCH SA may 
reset a Swaption Trade Date for Swaption Restructuring Cleared 
Transaction or Exercise Cleared Transaction. Section 9.4 of Part C 
would set forth the notice mechanics with respect to applicable 
notices, including with respect to Exercise Notices and Abandonment 
Notices. Section 9.5 of Part C would provide that, in relation to each 
Matched Pair, (x) the exercise of any rights by Matched Buyer against 
LCH SA under a Matched Buyer Contract shall be deemed to constitute the 
exercise of equal and simultaneous rights by LCH SA against Matched 
Seller under the Matched Seller Contract of the relevant Matched Pair, 
and (y) the exercise of any rights by Matched Seller against LCH SA 
under a Matched Seller Contract shall be deemed to constitute the 
exercise of equal and simultaneous rights by LCH SA against Matched 
Buyer under the Matched Buyer Contract of the relevant Matched Pair. To 
the extent that Matched Buyer and Matched Seller of a Matched Pair is 
the same Clearing Member, Section 9.6 would provide that such Clearing 
Member shall be deemed to have sent a notice from itself in its role as 
Matched Buyer to itself in its role as Matched Seller (and vice versa) 
upon such Clearing Member sending a Clearing Member Notice to LCH SA. 
Section 9.7 of Part C would then set forth the notice mechanics with 
respect to Matched Pair Buyer and Matched Pair Sellers.
j. Miscellaneous
    Sections 10 through 15 of Part C would contain miscellaneous 
provisions, including ones that relate to the mandatory provisions to 
be incorporated into CCM Client

[[Page 41444]]

Transactions, amendments, form of notices, limitation and exclusion of 
liability, dispute resolution, and governing law. The appendices to 
Part C would also include various forms, including the form of Exercise 
Notice (Appendix I), Abandonment Notice (Appendix II), Credit Event 
Notice (Appendix III), Notice to Exercise Movement Option (Appendix 
IV), Notice of Dispute Relating to Any Swaption Restructuring Exercise 
Matched Pair (Appendix V), and CCM Client Transaction Requirements 
(Appendix VI).
iii. CDS Clearing Procedures
    Various changes to the Procedures would be made for Index 
Swaptions.
a. Membership
    Section 1.1 of the Procedures sets forth the indicative timeline 
for LCH SA's processing of membership applications. Section 1.1 of the 
Procedures would be amended to clarify that an Applicant would be 
required to identify operational personnel with knowledge of Index 
Swaptions and that whether a Clearing Member's registration for the 
Index Swaption Clearing Service is approved will be specified in the 
LCH SA approval letter. Section 1.2 would be amended to state that if a 
Clearing Member wishes to register, or to be no longer registered, for 
the Index Swaption Clearing Service that Clearing Member must inform 
LCH SA and that LCH SA will notify the Clearing Member of its decision 
to register or terminate registration of the Clearing Member in respect 
of the Index Swaption Clearing Service. Section 1.2 of the Procedures 
would further provide that if a Clearing Member wishes to no longer be 
registered for the Index Swaption Clearing Service, LCH SA will not 
approve such a request as long as there is any Index Swaption Cleared 
Transaction registered in that Clearing Member's Account Structure.
b. Margin and Price Alignment Interest
    Section 2.7 of the Procedures, which describes the Initial Margin 
collected by LCH SA, would be modified to include a reference to Index 
Swaptions and to clarify that Initial Margin covers potential costs 
caused by a Defaulting Clearing Member and/or a ``double Event of 
Default,'' in respect of which the Clearing Member is a protection 
seller in respect of the Underlying Index Transaction of an Index 
Swaption Cleared Transaction. Sections 2.7(a)-(b) also include 
amendments for clarification purposes; Section 2.7(a) would note that 
Spread Margin would be calculated using spread and volatility 
variations; Section 2.7(b) would delete language for readability. 
Section 2.7(c) of the Procedures would be amended to refer to Index 
Swaption Cleared Transactions and to make clear the Short Charge Margin 
would be imposed where a Clearing Member is acting as a protection 
seller in respect of the Underlying Index Transaction of an Index 
Swaption Cleared Transaction. Section 2.8 of the Procedures would be 
amended to specify that Self-Referencing Protection Margin would be 
imposed where a Clearing Member is acting as a protection seller in 
respect of the Underlying Index Transaction of an Index Swaption 
Cleared Transaction, for which such Clearing Member is, or becomes, the 
Reference Entity. In Section 2.10 of the Procedures, changes would be 
made to specify that each Clearing Member acting as a protection buyer 
in respect of an Underlying Index Transaction of an Index Swaption 
Cleared Transaction where the exercise of that Index Swaption Cleared 
Transaction falls in the margin calculation time horizon would be 
required to pay Accrued Fixed Amount Liquidation Risk Margin, to cover 
the risk that it is subject to an Event of Default and accrued Fixed 
Amounts are due during the period that the relevant House Cleared 
Transactions or Non-Ported Cleared Transactions, as applicable, are 
liquidated pursuant to the CDS Default Management Process. Section 2.11 
of the Procedures, which relates to Credit Event Margin, would also be 
amended to specify that where a Credit Event occurs with respect to the 
Reference Entity which is the subject of the Cleared Transaction, each 
Clearing Member is required to pay Credit Event Margin to cover the 
risk of a potential adverse change in the estimated recovery rate, in 
the event of non-payment of Variation Margin by the Index Swaption 
Seller or Index Swaption Buyer in respect of an Index Swaption Cleared 
Transaction. Section 2.13 of the Procedures would also be amended to 
clarify that Variation Margin covers the variation of the market value 
of an Index Swaption.
c. Collateral and Cash Payment
    Section 3.18 of the Procedures would be amended to state that a 
Clearing Member is required to pay Premiums to satisfy its Cash Payment 
obligation in respect of Index Swaptions.
d. Eligibility Requirements
    Section 4.1 of the Procedures, which provides that LCH SA provides 
CDS Clearing Services only in relation to Original Transactions which 
comply with the requirements of Section 4.1(c) of the Procedures, would 
be modified to provide that in respect of an Original Transaction that 
is an Index Swaption Intraday Transaction, the Clearing Member must be 
registered for the Index Swaption Clearing Service. Section 4.1 
(c)(iii)(C) would also be added to identify the eligibility 
requirements for Index Swaption Intraday Transactions.
    A new Section 4.4 of the Procedures would be added to detail the 
procedures and factors for LCH SA to identify those contracts which 
will be considered Eligible Index Swaptions. Section 4.4 of the 
Procedures would require that LCH SA, in consultation with the CDSClear 
Product Committee, consider (i) each Expiration Date that is eligible 
for clearing; (ii) each Index Version of the Underlying Index 
Transaction which is eligible for clearing, as well as each term which 
is eligible for clearing and the currency of the Original Notional 
Amount which is eligible for clearing. Section 4.4(c) of the Procedures 
would also require that eligible Index Swaptions be published on LCH 
SA's Web site and Section 4.4(d) of the Procedures would permit LCH SA, 
in consultation with the CDSClear Product Committee, to amend the 
Eligible Index Swaptions List. Section 4.4(e)(ii) of the Procedures 
would identify the circumstances in which a Clearing Member may submit 
for clearing an Index Swaption that does not satisfy the relevant 
criteria in Section 4.1(c)(vi) of the Procedures if such transaction is 
a risk reducing transaction (as determined by LCH SA) in respect of a 
relevant Margin Account and it is not unlawful or illegal for LCH SA to 
accept such transaction for clearing.
e. CDS Clearing Operations
    Section 5 of the Procedures, which addresses CDS clearing 
operations, would include various amendments to facilitate clearing of 
Index Swaptions. Section 5.5 of the Procedures would be modified to 
include a description of the trade compression process for Index 
Swaption Cleared Transactions. Section 5.8 of the Procedures sets forth 
the process and procedures to ensure that all Cleared Transactions are 
stored and replicated on LCH SA's systems. Additional events required 
to be recorded and stored would be added to the list of items in 
Section 5.8 of the Procedures, including the creation of Swaption 
Restructuring Cleared Transactions and Exercise Cleared Transactions as 
well as the exercise of Exercise Cleared Transactions. Section 5.16 of 
the Procedures would be amended to require that LCH SA publish a 
Cleared Transaction Exercise Report. Section 5.18.2 (b) of the

[[Page 41445]]

Procedures would be amended to describe the process of the calculation 
of End of Day Contributed Prices in respect of Index Swaptions, which 
would include (i) the receipt and communication of market data from the 
Index Publisher, (ii) the application of a bid/ask constraint by LCH 
SA, with such values as defined by LCH SA from time to time, (iii) 
determination of a clearing price by LCH SA, and (iv) determination of 
any cross trades by LCH SA. Section 5.18.4 of the Procedures, relating 
to the use of data from an Index Publisher, would be modified to 
specify that if data is not received from the Index Publisher, LCH SA 
will use, with respect to Index Swaption Cleared Transactions, a 
computation of end of day contributed spreads and composite spreads for 
the purpose of calculating the Variation Margin Requirement for each 
Margin Account of a Clearing Member on the next following Business Day. 
Section 5.18.5 of the Procedures would then be amended to include a 
procedure for effecting cross trades where prices submitted by market 
participants in accordance with Section 5.18 do not reflect the quoted 
daily price for a particular Index Swaption. Finally, various other 
conforming and clarifying changes to refer to Index Swaptions would be 
made in Sections 5.3, 5.5, 5.12 and 5.16. Other amendments not related 
to Index Swaptions were made in Sections 5.11, 5.15 and 5.18.2 (a) for 
clarification purposes.
iv. Dispute Resolution Protocol
    Section 3.10 of the Dispute Resolution Protocol, which establishes 
the procedures applicable to arbitration proceedings involving LCH SA, 
would be amended to specify that these procedures also apply if the 
parties to the arbitration include an Index Swaption Seller or Index 
Swaption Buyer and if the dispute arises out of or in connection with 
the Cleared Transactions which are the subject of a Swaption 
Restructuring Matched Pair or Exercise Matched Pair.
2. Statutory Basis
    LCH SA believes that the proposed rule change and the clearing of 
Index Swaptions is consistent with the requirements of Section 17A of 
the Securities Exchange Act of 1934 \4\ (the ``Act'') and the 
regulations thereunder, including the standards under Rule 17Ad-22.\5\ 
Section 17(A)(b)(3)(F) of the Act \6\ requires, among other things, 
that the rules of a clearing agency be designed to promote the prompt 
and accurate clearance and settlement of securities transactions and 
derivative agreements, contracts, and transactions. As noted above, the 
proposed rule change is designed to provide for the clearing of Index 
Swaptions. From the operational point of view, Index Swaptions would 
not require changes to the existing operational procedures and, upon 
being exercised, the resulting exercised cleared transactions will be 
cleared in the same manner as other index contracts, consistent with 
LCH SA's operational arrangements. In addition, the proposed rule 
change, including amendments to Titles IV, V, and VI of the Rulebook, 
Part C of the Clearing Supplement, CDS Clearing Procedures, and Dispute 
Resolution Protocol will also clearly set forth the terms and 
conditions of Index Swaption Cleared Transactions, the payments to be 
made thereunder, the rules and procedures upon the occurrence of a 
Credit Event or Restructuring Event, the process for settlement, the 
applicable documentation for Index Swaption Cleared Transactions, as 
well as the dispute resolution protocol. Therefore, LCH SA believes 
that the clearing of Index Swaptions and the related changes described 
herein are consistent with the prompt and accurate clearance and 
settlement of securities transactions and derivative agreements, 
contracts and transactions, in accordance with 17(A)(b)(3)(F) of the 
Act.\7\
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78q-1.
    \5\ 17 CFR 240.17Ad-22.
    \6\ 15 U.S.C. 78q-1(b)(3)(F).
    \7\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    In addition, the proposed amendments also satisfy the relevant 
requirements of Rule 17Ad-22(e)(1), (13), and (18).\8\ Rule 17Ad-
22(e)(1) \9\ requires that a clearing agency maintain a well-founded, 
clear, transparent, and enforceable legal basis for each aspect of its 
activities in all relevant jurisdictions. The proposed rule change 
would modify LCH SA's existing rules and procedures to clearly define 
the requirements for Index Swaptions and establish a legal framework 
for LCH SA to clear Index Swaptions. The proposed rule change would 
also make certain corrections and clarifying and conforming changes in 
the Rule Book. LCH SA therefore believes that the proposed rule change 
is consistent with the requirements of Rule 17Ad-22(e)(1).
---------------------------------------------------------------------------

    \8\ 17 CFR 240.17Ad-22(e)(1), (4), (8), (12), (17), (18), and 
(22).
    \9\ 17 CFR 240.17Ad-22(e)(1).
---------------------------------------------------------------------------

    Further, Rule 17Ad-22(e)(13) requires a covered clearing agency to 
establish, maintain, and enforce 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. LCH SA will 
apply its existing default management policies and procedures for Index 
Swaptions, including the procedures for participation in a competitive 
auction process for a Defaulting Clearing Member's transactions and the 
appointment of at least two Clearing Members registered for the Index 
Swaption Clearing Service to be part of the five-member CDS Default 
Management Group, to allow LCH SA to take timely action to contain 
losses and liquidity demands, in accordance with 17Ad-22(e)(13).\10\
---------------------------------------------------------------------------

    \10\ 17 CFR 240.17Ad-22(e)(13).
---------------------------------------------------------------------------

    Finally, Rule 17Ad-22(e)(18) requires a covered clearing agency to 
have 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 
clearing agency. As noted above, the proposed rule change would extend 
existing participation requirements to persons proposing to enter into 
Index Swaptions and make clear that such persons must have operational 
competence in respect of Index Swaptions. Therefore, LCH SA believes 
that the proposed rule change is consistent with the requirements of 
Rule 17Ad-22(e)(18).\11\ Further, the membership requirements 
applicable to persons proposing to enter into Index Swaptions are 
designed to identify persons with sufficient operational capacity and 
expertise in relation to Index Swaptions; such requirements or criteria 
apply to every and all persons applying to enter into Index Swaptions 
clearing service equally and, as such, are not designed to unfairly 
discriminate in the admission of participants or among participants of 
LCH SA, in accordance with 17(A)(b)(3)(F) of the Act.\12\
---------------------------------------------------------------------------

    \11\ 17 CFR 240.17Ad-22(e)(18).
    \12\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

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

[[Page 41446]]

purposes of the Act.\13\ LCH SA does not believe that its clearing of 
Index Swaptions will adversely affect competition in the trading market 
for those contracts or CDS generally. By allowing LCH SA to clear Index 
Swaptions, market participants will have additional choices on where to 
clear and which products to use for risk management purposes, which, in 
turn, will promote competition and further the development of CDS for 
risk management. In addition, LCH SA will apply its existing fair and 
open access criteria to the clearing of Index Swaptions and will apply 
the same criteria to every person who proposes to enter into the 
clearing of Index Swaptions. Such criteria are designed to identify 
persons with sufficient operational capacity and expertise in relation 
to Index Swaptions as part of the membership requirements that are 
necessary and appropriate for LCH SA to manage the risk arising from 
allowing persons to participate in Index Swaptions. Accordingly LCH SA 
does not believe that the proposed rule change will impose any burden 
on competition that is not necessary or appropriate in furtherance of 
the purposes of the Act.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

C. Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants or Others

    Written comments relating to the proposed rule change have not been 
solicited or received. LCH SA will notify the Commission of any written 
comments received by LCH SA.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-LCH SA-2017-006 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-2017-006. 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 Web site (http://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 Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of LCH SA and on LCH 
SA's Web site at http://www.lch.com/asset-classes/cdsclear.
    All comments received will be posted without change; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-LCH SA-2017-
006 and should be submitted on or before September 21, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-18450 Filed 8-30-17; 8:45 am]
 BILLING CODE 8011-01-P