[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:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
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.
------------------------------------------------------------------------
* 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