[Federal Register Volume 84, Number 71 (Friday, April 12, 2019)]
[Notices]
[Pages 15025-15027]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-07327]
[[Page 15025]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85554; File No. SR-LCH SA-2019-001]
Self-Regulatory Organizations; LCH SA; Notice of Filing and
Immediate Effectiveness of Proposed Rule Change To Amend the CDS and
Options Fee Grid for CDSClear Clearing Members Effective Retroactively
From January 1st, 2019
April 8, 2019.
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 25, 2019, 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 and II below, which Items have been prepared
primarily by LCH SA. LCH SA filed the proposal pursuant to Section
19(b)(3)(A) of the Act,\3\ and Rule 19b-4(f)(2) \4\ thereunder, so that
the proposal was effective upon filing with the Commission. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(2).
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change will modify both CDS and Options fee grid
for CDSClear activities applicable from January 1st, 2019.
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
The purpose of this proposed rule change is for LCH SA to (1)
modify the annual fixed fee that covers all Index and Single Name CDS
self-clearing activity for a General Clearing Member and its affiliates
under the Unlimited Tariff, and (2) establish a new Unlimited Tariff to
cover all Options self-clearing activity for Clearing Members as well
as slightly increase the cap in the existing fee grid for the options
clearing service.
The proposed CDSClear fee changes will be retroactive from January
1st, 2019.
The need to apply the fees retroactively results from the long year
end 2018 shutdown of the U.S. federal government (the ``Shutdown'') and
the subsequent closure of the Securities and Exchange Commission
(``SEC'') past December 26th. As a result of the Shutdown, beginning on
December 27, 2018, the SEC was closed and SEC employees were out of the
office until an appropriation was enacted and the SEC reopened on
January 28, 2019. Because the SEC was closed, any filing submitted to
the SEC during the Shutdown was not considered ``received'' (i.e.,
legally filed) until the SEC reopened in January 2019. Accordingly,
when filing no. LCH SA-2018-006 was formally submitted to the SEC on
December 27th, 2018 through the Electronic Form 19b-4 Filing System
(``EFFS'') operated by the SEC, the filing was not considered as duly
``received,'' and therefore did not receive an official ``filing date''
until the SEC reopened end of January 2019, at which point the filing
was rejected on technical grounds because the year indicated in the
file number was no longer accurate.
As discussed and agreed with its clearing members and because LCH
SA had also intended the fee change to become effective from January
1st, 2019, LCH SA's national competent authorities had been duly
advised of the proposed fee change that was also rule certified with
the Commodity Futures Trading Commission (``CFTC'') on December 20,
2018 \5\ in a manner that would have permitted the fee change to take
effect early January 2019.
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\5\ See https://www.lch.com/system/files/media_root/Fee%20grid%20changes__20%20Dec%202018.pdf.
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Given the termination on December 31st, 2018 of the previous
CDSClear annual fixed fee amount applicable to General members under
the Unlimited Tariff and any other alternative solution, the absence of
the retroactive application of the new proposed and agreed fee grid
would cause a potential harm to the LCH SA CDSClear business because
CDSClear would have been without a regulatory approved fee grid
including the new annual clearing fixed fee amount under the General
Member Unlimited Tariff and would thus not have been in a position to
collect the relevant revenues throughout its entire fee grid. Further,
as described below, the annual fixed fee for the CDS Unlimited Tariff
for General Members is supposed to decrease and no change has been made
to the General Member Introductory Tariff and the Select Member Tariff
so that none of them would be caught unaware if retroactive approval is
granted.
(1) Annual Clearing Fixed Fee (General Member Unlimited Tariff)
Until December 31st, 2018, CDSClear was offering an all you can eat
type of tariff called the ``CDS Unlimited Tariff'' for General Members
that covers all self-clearing CDS Index and Single Name activity for a
Clearing Member (``CM'') and its affiliates for an annual fixed fee of
[euro]2,000,000 (no variable fee).The proposed change will modify the
annual fixed fee of the CDS Unlimited Tariff for General Members from
[euro]2,000,000 per year to [euro]1,700,000 per year from January 1st,
2019. This fixed fee will cover all clearing fees for Index and Single
Name CDS house activity excluding Sovereign CDS for all affiliates of a
given CM group.
(2) Options Clearing Service Fee Grid
In addition, LCH SA is proposing to modify the CDSClear fee grid
set up for the Options clearing service. Currently, Clearing Members
and Clients that participate in the CDSClear Options clearing service
are charged the clearing fees as follows:
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General Member:
Onboarding Fees............ [euro]30k one-off fee per Legal
Entity waived until 31-
Mar-18.
Clearing Fees.............. $15 per million of option
[euro]15 notional on U.S.
Indices.*
per million of option
notional on European
Indices.
Floor on clearing fees. [euro]150k Per calendar year (no
pro-rating).
Cap on Clearing fees... [euro]500k Per calendar year (no
pro-rating).
Select Member:
[[Page 15026]]
Onboarding Fees............ [euro]30k one-off fee per Legal
Entity waived until 31-
Mar-18.
Clearing Fees.............. $18 per million of option
[euro]18 notional on U.S.
Indices.*
per million of option
notional on European
Indices.
Cap on Clearing fees... [euro]500k Per calendar year (no
pro-rating).
Client:
Clearing Fees.............. $20 per million of option
[euro]20 notional on U.S.
Indices.
per million of option
notional on European
Indices.
Clearing fee holiday from launch until 31-Dec-2017 for all Members and
Clients.
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* Subject to regulatory approval.
As specified in the new LCH CDSClear options fee grid attached
below under Exhibit 5, effective from 1st January 2019, it is proposed
to:
(a) Rename the current Options clearing service tariff the Options
Introductory Tariff;
(b) Increase the annual cap in the Options Introductory Tariff from
[euro]500k to [euro]600k for both General Members and Select Members;
(c) Introduce a new tariff called the Options Unlimited Tariff
available to both General Members and Select Members and in which
Members would pay an annual fixed fee to cover all the self-clearing
fees for Credit Index Options of all affiliated entities of a given
Clearing Member Group. The level of this annual fixed fee (no pro-
rating) would be set to:
[rtarr8] [euro]375k for General Members
[rtarr8] [euro]400k for Select Members
(d) Maintain the one-off onboarding fee of [euro]30k to the Options
clearing service under the following terms and conditions:
(i) The onboarding fee will be waived for all General and Select
Members until 31-Mar-2019;
(ii) Under the Options Introductory Tariff, an onboarding fee will
be charged for each legal entity (even if of the same Group) onboarding
the service; and
(iii) Under the Options Unlimited Tariff, only one single
onboarding fee will be charged for all affiliated entities of a given
Clearing Member Group onboarding the service.
2. Statutory Basis
Section 17A(b)(3)(D) of the Act requires that the rules of a
clearing agency provide for the equitable allocation of reasonable
dues, fees, and other charges.\6\
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\6\ 15 U.S.C. 78q-1(b)(3)(D).
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With respect to the change of the CDS Unlimited Tariff, LCH SA has
determined in consultation with its clearing members that the reduction
in the annual fixed fee for General Members covering their Index and
Single Name CDS self-clearing activity is reasonable and appropriate
given the costs and expenses to LCH SA in providing the CDSClear
service as well as the fact that the business is now reaching a more
mature stage in its development and therefore requires less investment
in the future.
As explained above and as agreed with the clearing members,
applying the fees retroactively is also reasonable. Absent the Shutdown
and subsequent closure of the Commission, as duly expected by the
CDSClear members pursuant to the consultation process, the proposed fee
changes including the new annual fixed fee amount for the General
Members would have been immediately applicable from January 1st, 2019
pursuant to Section 19(b)(3)(A) \7\ of the Act and Rule 19b-4(f)(2).\8\
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\7\ 15 U.S.C. 78s(b)(3)(A).
\8\ 17 CFR 240.19b-4(f)(2).
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The proposed changes to the Options clearing service fee grid in
consultation with CDSClear members aim at:
--Offer CDSClear Clearing Members a true ``all you can eat'' tariff
that covers all their self-clearing activities across the whole scope
of products eligible at CDSClear
--Incentivize additional clearing members to onboard and use the
Options clearing service by providing a more attractive tariff in which
the marginal cost of clearing options reduces as more volumes are
cleared.
--Building enough interdealer liquidity on the Options clearing service
such that buy-side clients can also get comfortable with clearing
credit index options at LCH SA CDSClear service, which is key for the
market participants to get the full benefits of clearing options from a
multilateral netting and the associated operational risk decrease
perspective.
The proposed fee grid will apply equally to all General Members,
Select Members and clients that will voluntary join this CDSClear
offering and LCH SA believes that it is reasonable and appropriate.
LCH SA believes that imposing such clearing fees is consistent with
the requirements of Section 17A of the Act \9\ and the regulations
thereunder applicable to it, and in particular provides for the
equitable allocation of reasonable fees, dues, and other charges among
clearing members and market participants by ensuring that Members pay
reasonable fees and dues for the services provided by LCH SA, within
the meaning of Section 17A(b)(3)(D) of the Act.
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\9\ 15 U.S.C. 78q-1.
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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.\10\ LCH SA does
not believe that the proposed rule change would impose any burden on
competition.
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\10\ 15 U.S.C. 78q-1(b)(3)(I).
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As noted above, LCH SA believes that the fees and any related
discount have been set up at an appropriate level given the costs and
expenses to LCH SA in offering and maintaining the relevant CDSClear
services.
Additionally, the fees and related discounts will apply equally to
all Clearing Members of CDSClear.
Further, LCH SA does not believe that the proposed rule change
would have a burden on competition because it does not adversely affect
the ability of such Clearing Members or other market participants
generally to engage in cleared transactions or to access clearing
services.
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
(a) The foregoing rule change has become effective pursuant to
Section 19(b)(3)(A) of the Act \11\ and paragraph (f) of Rule 19b-4
\12\ thereunder. At any time within 60 days of the filing of the
[[Page 15027]]
proposed rule change, the Commission summarily may temporarily suspend
such rule change if it appears to the Commission that such action is
necessary or appropriate in the public interest, for the protection of
investors, or otherwise in furtherance of the purposes of the Act.
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
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-2019-001 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-2019-001. 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 (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 website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of such filings will also be available for inspection
and copying at the principal office of LCH SA and on LCH SA's website
at https://www.lch.com/resources/rules-and-regulations/proposed-rule-changes-0. All comments received will be posted without change. Persons
submitting comments are cautioned that we do not redact or edit
personal identifying information from comment submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-LCH SA-2019-001 and should
be submitted on or before May 3,2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-07327 Filed 4-11-19; 8:45 am]
BILLING CODE 8011-01-P