[Federal Register Volume 84, Number 174 (Monday, September 9, 2019)]
[Notices]
[Pages 47328-47330]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-19335]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86858; File No. SR-LCH SA-2019-006]
Self-Regulatory Organizations; LCH SA; Notice of Filing of
Proposed Rule Change Relating to Extension of Weekly Backloading Cycle
to Index Swaptions
September 3, 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 August 20, 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, 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
Banque Centrale de Compensation, which conducts business under the
name LCH SA (``LCH SA''), is proposing to amend its (i) CDS Clearing
Rule Book (``Rule Book'') and (ii) CDS Clearing Procedures
(``Procedures'') (collectively the ``CDS Clearing Rules'') to make
conforming, clarifying, and clean-up changes intended to: (1) Extend
the weekly backloading process to Index Swaptions; and (2) amend the
structure of the documentation in respect of the backloading process.
Capitalized terms not defined or modified in this rule proposal will
have the same meaning as in LCH SA's existing Rule Book or Procedures.
The text of the proposed rule change has been annexed as Exhibit
5.\3\
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\3\ All capitalized terms not defined herein have the same
definition as the Rule Book, Supplement or Procedures, as
applicable.
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The implementation of the updated Rule Book and Procedures will be
contingent on LCH SA's receipt of all necessary regulatory approvals.
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
LCH SA is proposing to amend its CDS Clearing Rules to allow
clearing
[[Page 47329]]
process of Index Swaptions through the CDSClear Weekly Backloading
Cycle, in addition to the CDS that are already in the scope of this
process today.
Further, this proposed rule change will also amend the CDS Clearing
Rules in order to review the structure of the rule book documentation
in respect of the Weekly Backloading Cycle and the Daily Backloading
Cycle and make consistency changes.
(a) Amendments To Extend the Weekly Backloading Cycle to Index
Swaptions
The updated CDS Clearing Rules will permit Clearing Members to
submit Index Swaptions to LCH SA for clearing through the Weekly
Backloading Cycle. For the purpose of this extension, existing defined
terms and provisions in the Rule Book and Sections 4 and 5 of the
Procedures have been amended as described below.
i. Rule Book
With respect to the Rule Book, LCH SA proposes to make amendments
to the existing defined term ''Weekly Backloading Transaction''
contained within Title I, Chapter 1, Section 1.1.1. by adding a
reference to ``Index Swaption''.
ii. Procedures
(A) Section 4
Section 4 of the Procedures will be updated to make the relevant
eligibility requirements applicable to Index Swaptions to be submitted
to LCH SA for clearing through the Weekly Backloading Cycle where
necessary.
Thus, the reference to an ``Index Swaption Intraday Transaction''
in Section 4.1(c)(i)(V) will be replaced by a reference to an ``Index
Swaption''. In addition, the reference to an ``Index Swaption Intraday
Transaction'' in Section 4.1(c)(iii)(C) will be replaced by a reference
to an ``Index Swaption that is an Index Swaption Intraday Transaction
or a Weekly Backloading Transaction''.
(B) Section 5
LCH SA proposes to update Section 5 of the Procedures by adding a
reference to ``Index Swaptions'' in Section 5.2(b) so that Index
Swaptions are eligible for the Weekly Backloading Cycle.
(b) Technical Amendments
The amendments to the Rule Book and Procedures also contain
typographical corrections and changes made for consistency purpose.
Specifically, information on the Daily Backloading Cycle and the Weekly
Backloading Cycle will be moved from the Rule Book and Section 5 of the
Procedures to new Clearing Notices (i.e. a Clearing Notice named
``Daily Backloading Cycle'' and a Clearing Notice named ``Weekly
Backloading Cycle'') for consistency purpose as this is operational
information that does not need to be part of the CDS Clearing Rules. No
amendment will be made to the content of the provisions moved to these
new Clearing Notices.
Therefore, Section 5.2(b) and (c) of the Procedures will refer to a
Clearing Notice and the timetable applicable to each of the Daily
Backloading Cycle and Weekly Backloading Cycle is proposed to be
removed from these paragraphs. In the Rule Book, defined terms of
``Eligible Weekly Backloading Transaction'' and ``Irrevocable Weekly
Backloading Transaction'' will therefore refer to a Clearing Notice
instead of Section 5 of the Procedures, as well as Sections 3.1.1 and
3.1.2 of the Rule Book.
In addition, the definitions of ``Weekly Backloading Start Day''
and ``Weekly Backloading Novation Day'' in the Rule Book are proposed
to be amended in order to make a general reference to a day as
determined by LCH SA in accordance with Article 3.1.1.10 of the Rule
Book as these days will be provided for in the new Clearing Notice
named ``Weekly Backloading Cycle''. Article 3.1.1.10 will be amended to
remove the publication date of this Clearing Notice as the provisional
calendar, which specifies the Weekly Backloading Cycle will not change
each year.
Finally, typographical corrections will be made to the definition
of ``Converting Clearing Member'' in the Rule Book and Section
4.1(c)(vii)(B) of the Procedures. The reference to Section 3 in Article
3.1.1.1 of the Rule Book is also proposed to be deleted as it is
redundant with the provisions of the previous sentence of this Article.
2. Statutory Basis.
As more discussed below, LCH SA believes that the Proposed Rule
Change is consistent with the requirements of Section 17A of the
Securities Exchange Act of 1934 \4\ (the ``Exchange Act'') and the
regulations thereunder, including the standards under Exchange Act Rule
17Ad-22.\5\
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\4\ 15 U.S.C. 78q-1.
\5\ 17 CFR 240.17Ad-22.
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Section 17A(b)(3)(F) of the Exchange 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, to the extent applicable, derivative agreements, contracts, and
transactions.
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\6\ 15 U.S.C. 78q-1(b)(3)(F).
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By offering Clearing Members the possibility to submit Index
Swaptions to LCH SA for clearing through the CDSClear Weekly
Backloading Cycle, the Proposed Rule Change will extend the backloading
to Index Swaptions and therefore permit cross instruments netting that
can yield more cost effective margins and would promote the clearance
process of credit derivatives transactions so that LCH SA believes that
the proposed amendments are consistent with the requirements of Section
17A of the Exchange Act.\7\
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\7\ 15 U.S.C. 78q-1.
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These proposed rule changes will also provide additional security
to members who will choose to perform intraday clearing as it will
enable the capture of trades that would normally be sent as part of
intraday clearing but that are sent for clearing beyond the current one
day deadline. This, therefore, will be consistent and align with the
requirements of Exchange Act Rule 17Ad-22(e)(8) which requires each
covered clearing agency to establish, implement, maintain and enforce
written policies and procedures reasonably designed to ``define the
point at which settlement is final to be no later than the end of the
day on which the payment or obligation is due and, where necessary or
appropriate, intraday or in real time.'' \8\
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\8\ 17 CFR 240.17Ad-22(e)(8).
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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.\9\ LCH SA does
not believe that the proposed rule change would impose burdens on
competition that are not necessary or appropriate in furtherance of the
purposes of the Act.
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\9\ 15 U.S.C. 78q-1(b)(3)(I).
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LCH SA is only extending the CDSClear weekly Backloading cycle to
Index Swaptions.
Specifically, the proposed rule changes would apply equally to all
Clearing Members and would generally improve the ability of such market
participants to engage in cleared transactions and clearing services.
Therefore, LCH SA does not believe that the proposed rule change
would impose a burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
[[Page 47330]]
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-2019-006 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-2019-006. 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 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 the filing also will 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-2019-006 and
should be submitted on or before September 30, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
Jill M. Peterson,
Assistant Secretary.
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\10\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2019-19335 Filed 9-6-19; 8:45 am]
BILLING CODE 8011-01-P