[Federal Register Volume 86, Number 7 (Tuesday, January 12, 2021)]
[Notices]
[Pages 2468-2472]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-00348]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90862; File No. SR-LCH SA-2020-007]


Self-Regulatory Organizations; LCH SA; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Relating to the 
Amendments of the CDSClear Fee Grid

January 6, 2021.
    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 December 31, 2020, 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 
by LCH SA. LCH SA filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act,\3\ and Rule 19b-4(f)(2) \4\ thereunder, so that 
the proposed rule change was effective upon filing with the Commission. 
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.
    \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 is to review and modify the current 
CDSClear fee grid applied by LCH SA.
    The text of the proposed rule change has been annexed as Exhibit 5 
[sic].

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 fee changes is for LCH SA CDSClear to 
revise the (i) fees under the Unlimited Tariff for General Members,\5\ 
(ii) fees for Corporates and Financials Index and Single Name CDS under 
the Introductory Tariff for both General and Select Members, (iii) fees 
set up for the Options clearing service for both General and Select 
Members and Clients as well and introduce (iv) new fee conditions for 
Affiliates clearing as client.
---------------------------------------------------------------------------

    \5\ All capitalized terms not defined herein have the same 
definition as the CDSClearing Rule Book, Supplement or Procedures, 
as applicable.
---------------------------------------------------------------------------

    LCH SA is currently applying the below fee grid for CDSClear 
members:

                                  Current Self-Clearing Tariff for Corporates and Financials Index and Single Name CDS
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Self-clearing/variable fees
           Membership              Annual fixed fee  --------------------------------------------------------------------------------
                                                         EUR  indices      EUR  single names     USD  indices      USD  single names
--------------------------------------------------------------------------------------------------------------------------------------------------------
General Member--Unlimited Tariff  [euro] 1,300,000..  No Variable Fee                                                                 Covers all self-
                                                                                                                                       clearing
                                                                                                                                       Corporate and
                                                                                                                                       Financials Index
                                                                                                                                       and Single Name
                                                                                                                                       activity for a
                                                                                                                                       Clearing Member
                                                                                                                                       and its
                                                                                                                                       affiliates.
                                                     ---------------------------------------------------------------------------------------------------
General Member--Introductory      [euro]200,000 if    [euro]3.5 Per       [euro]10 Per        $4.5 Per million    $13 Per million     Cap on total
 Tariff.                           the total annual    million gross       million gross       gross notional      gross notional      annual self-
                                   gross notional      notional cleared.   notional cleared.   cleared.            cleared.            clearing fees
                                   cleared is under                                                                                    (fixed +
                                   [euro]15 billion.                                                                                   variable) of EUR
                                                                                                                                       1,300,000 after
                                                                                                                                       which all further
                                                                                                                                       trades cleared in
                                                                                                                                       the calendar year
                                                                                                                                       are subject to a
                                                                                                                                       fee holiday.
                                  [euro]400,000 if    [euro]3.5 Per       [euro]10 Per        $4.5 Per million    $13 Per million
                                   the total annual    million gross       million gross       gross notional      gross notional
                                   gross notional      notional cleared.   notional cleared.   cleared.            cleared.
                                   cleared is over
                                   [euro]15 billion.
Select Member...................  [euro]250,000 if    [euro]4 Per         [euro]10 Per        $5 Per million      $13 Per million
                                   the total annual    million gross       million gross       gross notional      gross notional
                                   gross notional      notional cleared.   notional cleared.   cleared.            cleared.
                                   cleared is under
                                   [euro]25 billion.
                                  [euro]450,000 if
                                   the total annual
                                   gross notional
                                   cleared is over
                                   [euro]25 billion.
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 2469]]


                   Options Tariff Including Fee Rebate
------------------------------------------------------------------------
 
------------------------------------------------------------------------
                             General Member
------------------------------------------------------------------------
Introductory Tariff............  Cover only one legal entity (no
                                 affiliate coverage). In-year switches
                                 are not permitted.
                                ----------------------------------------
    Clearing Fees..............             $15  per million of option
                                                  notional on US
                                                  Indices.
                                       [euro]15  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] 375k  Per calendar year (no
                                                  pro-rating).
                                ----------------------------------------
Unlimited Tariff...............  Cover all affiliates of a given
                                 Clearing Member Group Cover all
                                 clearing fees for Credit Option House
                                 activity for both iTraxx and CDX.NA
                                 underlying index families. Excludes any
                                 potential future EEP usage fees. In-
                                 year switches are not permitted.
                                ----------------------------------------
    Fixed fee (annual).........     [euro] 375k
                                   Per calendar
                                  year (no pro-
                                       rating).
                                ----------------------------------------
    Discounted Rates *.........  [euro] 150k if notionals cleared
                                 strictly above [euro]6bn but equal to
                                 or below [euro]13.5bn [euro] 75k if
                                 notionals cleared strictly above
                                 [euro]13.5bn.
                                ----------------------------------------
Onboarding Fees................      [euro] 30k  One-off fee per Legal
(both Introductory & unlimited)                   Entity under the
                                                  Introductory tariff or
                                                  per Clearing Member
                                                  Group under Unlimited
                                                  tariff waived until 30-
                                                  Apr-2020.
------------------------------------------------------------------------
                              Select Member
------------------------------------------------------------------------
Introductory Tariff............  Cover only one legal entity (no
                                 affiliate coverage)
                                 In-year switches are not permitted.
                                ----------------------------------------
    Clearing Fees..............            $ 18  per million of option
                                                  notional on US
                                                  Indices.
                                      [euro] 18  per million of option
                                                  notional on European
                                                  Indices.
        Cap on Clearing fees...     [euro] 400k  Per calendar year (no
                                                  pro-rating).
                                ----------------------------------------
Unlimited Tariff...............  Cover all affiliates of a given
                                 Clearing Member Group. Cover all
                                 clearing fees for Credit Option House
                                 activity for both iTraxx and CDX.NA
                                 underlying index families. Excludes any
                                 potential future EEP usage fees. In-
                                 year switches are not permitted.
                                ----------------------------------------
    Fixed fee (annual).........     [euro] 400k  Per calendar year (no
                                                  pro-rating).
                                ----------------------------------------
    Discounted Rates *.........  [euro] 150k if notionals cleared
                                 strictly above [euro]6bn but equal to
                                 or below [euro]13.5bn [euro] 75k if
                                 notionals cleared strictly above
                                 [euro]13.5bn.
                                ----------------------------------------
Onboarding Fees (both                [euro] 30k  One-off fee per Legal
 Introductory & unlimited).                       Entity under the
                                                  Introductory tariff or
                                                  per Clearing Member
                                                  Group under Unlimited
                                                  tariff waived until 30-
                                                  Apr-2020.
------------------------------------------------------------------------
* Cumulative conditions for the Fee rebate:
    (i) Application to the Unlimited Tariff only;.......................
    (ii) Application to all Clearing Members registering to the Index
     Swaptions clearing service (registration letter or application file
     signature date); and.
    (iii) Index Swaptions notional cleared for the determination of the
     discount rate to be observed from the regulatory effective date of
     the rebate..
------------------------------------------------------------------------
                                 Client
------------------------------------------------------------------------
Clearing Fees..................            $ 20  per million of option
                                                  notional on US
                                                  Indices.
                                      [euro] 20  per million of option
                                                  notional on European
                                                  Indices.
------------------------------------------------------------------------

    As specified in the new fee grid attached under Exhibit 5 [sic], 
LCH SA is proposing to amend the CDSClear fee grid from January 1st, 
2021.
    The proposed fee changes are driven by the evolution of the 
CDSClear business and arrangements.

--for the Index and Single Names: The fee change reflects a transition 
to a more matured phase of development of the CDSClear service, and
--for the Options fee grid: The intent is to adjust the fee conditions 
and rebate to the new competitive environment as well as encourage the 
development of options clearing by clients,
--for Affiliates clearing as client, the need to take into 
consideration the evolution of the corporate structure of dealers and 
the use of multiple legal entities.
(1) Change the Fees Under the Unlimited Tariff for General Members
    CDSClear currently offers an Unlimited Tariff for General Members 
that covers all self-clearing Corporate and Financials CDS Index and 
Single Names activity for a Financial Group of a Clearing Member for an 
annual fixed fee of [euro]1,300,000 (no variable fees).
    The proposed change consists in increasing the annual fixed fee 
amount to [euro]1,350,000 per year from January 1, 2021.
(2) Change the Fees Under the Introductory Tariff for Both General and 
Select Members
(a) For General Members
    As specified in the new LCH SA CDSClear fee grid attached below in 
Exhibit 5 [sic], from January 1, 2021, the annual fixed fee under the 
Introductory Tariff will be set for General Members to [euro]200,000 if 
the total annual gross notional cleared is under [euro]10bn (vs 
[euro]15bn today) and to [euro]400,000 per year when clearing more than 
[euro]10bn (vs [euro]15bn today).
    LCH SA is also proposing to remove the previous annual cap on total 
annual fees (fixed + variable) of [euro]1,300,000 under the 
Introductory Tariff for General Members.
    The variable fees remain the same as the current ones.
(b) For Select Members
    From January 1, 2021, the annual fixed fee under the Introductory 
Tariff will be set for Select Members to [euro]250,000 if the total 
annual gross notional cleared is under [euro]20bn (vs [euro]25bn today) 
and to [euro]450,000 per year

[[Page 2470]]

for Select Members when clearing more than [euro]20bn (vs [euro]25bn 
today).
    The variable fees remain the same as the current ones.
(3) Revise the Fees Set Up For the Options Clearing Service for Both 
General and Select Members as Well as Clients
(a) Options Unlimited Tariff for General and Select Members
    From January 1, 2021, the annual fixed fee covering all clearing 
fees for Credit Index Options House activity for all Affiliates of a 
given Financial Group of a Clearing Member is proposed to change from a 
two tier discount (the first one if the notional cleared is strictly 
above [euro]6bn and the second one if the notional cleared is strictly 
above [euro]13.5bn) to a single discount if the notional cleared is 
strictly above [euro]15bn. The fixed fee would in the new fee grid then 
be reduced from [euro]375,000 to [euro]115,000 (no prorating) for 
General Members and from [euro]400,000 to [euro]115,000 (no prorating) 
for Select Members compared to [euro]150k and [euro]75k for the two 
tiers currently.
(b) Options Introductory Tariff for General and Select Members
    The current Options Introductory Tariff for both General and Select 
Members covers only the legal entity that is registering to the 
service.
    The Options Introductory Tariff for a General Member is proposed to 
be based on the annual floor and conditions below:

 Floor of [euro]115,000 for a single entity (vs [euro]150,000 
today per entity)
 Floor of [euro]150,000 for 2 entities of the same Financial 
Group of a Clearing Member
 Floor of [euro]190,000 for 3 or more entities of the same 
Financial Group of a Clearing Member
 Removal of the annual cap of [euro]375,000 on Options clearing 
fees
 Reduction of variable fees from [euro]15/$15 to [euro]8/$8 per 
million of option notional cleared.

    The Options Introductory Tariff for a Select Member is proposed to 
be based on the conditions below:

 Reduction of variable fees from [euro]18/$18 to [euro]10/$10 
per million of option notional cleared
 Removal of the annual cap on Options clearing fees of 
[euro]400,000
(c) Options Clearing Members (General Members Under Unlimited or 
Introductory)
    LCH SA is proposing an up to [euro]200,000 fee rebate limited to 
the total amount of Options clearing fees paid by a Financial Group of 
a Clearing Member in 2021 for the first two Clearing Members clearing 
Options for at least one Client by 31 July 2021.
(d) Options Clearing Fees for Clients
    The Options clearing fee grid for Clients is proposed to include 
the following changes:

 Clients variable clearing fees for Options decreased from 
[euro]20/$20 to [euro]5/$5 per million of option notional cleared
 Fee holiday for Clients clearing Options in 2021
(4) Introduction of New Fee Conditions for Affiliates Clearing as 
Client
    As specified in the new LCH SA CDSClear options fee grid attached 
below in Exhibit 5 [sic], LCH SA CDSClear is proposing to offer a full 
rebate on client clearing variable fees for Affiliates of a Clearing 
Member that is clearing as client of that Clearing Member under the 
following conditions:
     The Clearing Member is a General Member under the 
Unlimited Tariff,
     The Affiliate is a legal entity part of the same Financial 
Group as the Clearing Member,
     The rebate applies to 1 trade account per Affiliate and 
for all clearing services for which the Clearing Member is under the 
Unlimited Tariff (i.e. Index & Single Names and/or Options),
     The rebate cannot apply to any account opened for CCM 
Indirect Clients, and
     A fixed annual account fee of [euro]100,000 is charged per 
Affiliate of a Clearing Member onboarded as a Client and benefiting 
from the full rebate on variable fees.
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\
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78q-1(b)(3)(D).
---------------------------------------------------------------------------

    LCH SA believes that its clearing fee change proposal is consistent 
with the requirements of Section 17A of the Act \7\ 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 clearing 
members and clients pay reasonable fees and dues for the services 
provided by LCH SA, within the meaning of Section 17A(b)(3)(D) of the 
Act.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

    With respect to the change of the Index and Single Name CDS 
Unlimited Tariff for General Members, LCH SA has determined in 
consultation with its clearing members that the slight increase in the 
annual fixed fee amount for General Members covering their Index and 
Single Name CDS self-clearing activity is reasonable and appropriate as 
the CDSClear business is now reaching a more mature stage in its 
development and the likelihood to onboard new General Members under the 
Unlimited Tariff is small or even negligible given the structure of the 
CDS market and the limited number of market makers in this space.
    With respect to the Index and Single Names CDS Introductory Tariffs 
for both General and Select Members, both the annual fixed fee and the 
variable fees remain the same. The removal of the cap as well as the 
lowering of the notional thresholds aim at reflecting the fact that 
market participants are now more familiar with the CDSClear service as 
well as their own activity in the Credit Derivatives space:

--the removal of the cap which was struck at the level of the fixed fee 
under the Unlimited Tariff incentivizes Clearing Members to select the 
most appropriate tariff for them at the start of the year.
--the lowering of the notional thresholds would constitute an increase 
of fees for the Members which have cleared less than the current 
threshold but more than the new one. No member is in that situation.

    The main change in the fee grid of the Options clearing service is 
the decrease of the variable fees for General and Select Members as 
well as Clients in order to make clearing of options more attractive 
for all, and in particular for clients to begin clearing options.
    Besides, and after discussing with its Clearing Members, LCH SA has 
elected to maintain a similar volume-based discount fee structure for 
its Options Unlimited Tariff for both General and Select Members in 
which the cost of clearing options decreases as more volumes are 
cleared. The increase of the notional threshold as well as of the 
decrease of the discount percentage are reflective of the growth of the 
Option clearing service over the last year which now is more broadly 
used by LCH SA Clearing Members and which justifies the increase of 
total fees paid by the Clearing Members having selected this scheme.
    Consequently, the General Member Introductory Tariff has been 
redesigned to be more appropriate for smaller Options trading members: 
In particular, the decrease of the annual floor, the

[[Page 2471]]

introduction of 2 new levels of annual floor depending on the number of 
legal entities of a given Financial Group of a Clearing Member joining 
the service as well as the removal of the cap are meant to ease the 
introduction of new members to the Options clearing service.
    Changes following the same principles and rationale have also been 
made to the Select Members Options fee grid to ensure a consistent 
access between the 2 membership tiers.
    Lastly, and in order to incentivize the development of Options 
Client clearing, LCH SA is proposing to provide the first 2 Clearing 
Members clearing options on behalf of at least one of their clients, 
and before 31 July 2021, with a one-off fee rebate equal to the total 
amount of Options clearing fees paid in 2021, capped at [euro]200,000, 
in order to mitigate the cost associated with the systems developments 
required to enable clients to access the LCH SA Options clearing 
service. The rationale to limit the number of Clearing Members eligible 
to this one-off rebate to the first two clearing an option trade on 
behalf of clients is twofold:

--Further incentivize competition between the Clearing Members which 
have an interest in building client clearing capabilities for options 
by offering a rebate substantial enough to cover some of the build 
costs that will be incurred by the Clearing Members.
--Mitigate financial risk for LCH SA by predefining the maximum amount 
of rebate it could have to pay back to its Clearing Members as well as 
the amount of the rebate they would get, thus maintaining the 
attractiveness of the rebate for them. All clearing members will have 
the same opportunity to equally benefit from the proposed incentive 
rebate according to the specified conditions.

    Finally, the introduction of a specific fee structure (full 
variable fee rebate plus fixed account charge) for Affiliates of a 
given Financial Group of a Clearing Member clearing as Clients of such 
Clearing Member and under a set of pre-defined conditions aims at 
offering Financial Groups of Clearing Members under the General 
Membership Unlimited Tariff additional, fairly-priced ways for their 
Affiliates to gain access to LCH SA CDSClear service.
    LCH SA CDSClear has thus determined that the proposed new fee 
structure is more appropriate and takes into account the expected 
volume of transactions. All the clearing fee conditions remain 
transparent and equally applicable to any market participant wishing to 
access the CDSClear clearing service for both Index & Single Names as 
well as Options.
    For all the reasons stated above, LCH SA believes that the proposed 
fee rates are reasonable and have been set up at an appropriate level 
so that LCH SA can provide the CDSClear services.

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.\8\
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

    LCH SA does not believe that the proposed rule change would impose 
any burden on competition that are not necessary or appropriate in 
furtherance of the purposes of the Act because LCH SA is offering the 
possibility for CDSClear members and clients to get a more attractive 
access to the clearing services. It does not affect the ability of such 
Clearing Members or other market participants generally to engage in 
cleared transactions or to access clearing services especially to the 
clearing of credit index swaptions that remains not mandatory.
    Additionally, the proposed volume-based discount scheme for the 
Options Unlimited Tariff will be available to any Financial Group of a 
Clearing Member using CDSClear services.
    Similarly, the proposed Index and Single Names Unlimited Tariff 
will be available to any Financial Group including an entity registered 
as a General Member of the CDSClear service.
    The annual fixed fee increase does not impact any competition 
between General and Select Members as the choice of membership tier 
made by a Clearing Member is mainly driven by the material differences 
in the obligations of a General Member versus those of a Select Member 
(in terms of price contribution and auction bidding notably) which are 
reflected in the tariffs available for each tier.
    The rebate offered on client clearing fees for Affiliates of a 
General Member under the Unlimited Tariff relies on the fact that 
should such Affiliate join as a Clearing Member his fees would be 
covered by the fixed fee of the Unlimited Tariff whereas this wouldn't 
the [sic] case for Select Members.
    More broadly, none of the proposed changes impacts competition 
between General and Select Members as they have been designed 
consistently across both tiers or are more extensions of existing 
features of the current fee grid.
    Further, as explained above, LCH SA believes that the fee rates 
have been set up at an appropriate level given the costs and expenses 
to LCH SA in offering the relevant 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 but a consultation has been conducted with and 
verbal feedback sought from CDSClear members. No comment or question 
has been received following this consultation. LCH SA will notify the 
Commission of any subsequent written comments received by LCH SA.

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

    The foregoing proposed rule change has become effective upon filing 
pursuant to Section 19(b)(3)(A)9 [sic] of the Act and Rule 19b-
4(f)(2)10 [sic] thereunder because it establishes a fee or other charge 
imposed by LCH SA on its Clearing Members. At any time within 60 days 
of the filing of the 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.

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-2020-007 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-2020-007. 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

[[Page 2472]]

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/rulebooks/proposed-rule-changes. 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-2020-007 and should 
be submitted on or before February 2, 2021.
---------------------------------------------------------------------------

    \9\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-00348 Filed 1-11-21; 8:45 am]
BILLING CODE 8011-01-P