
[Federal Register Volume 81, Number 191 (Monday, October 3, 2016)]
[Notices]
[Pages 68074-68078]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-23747]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78941; File No. 600-36]


Self-Regulatory Organizations; LCH SA; Notice of Filing of 
Application for Registration as a Clearing Agency and Request for 
Exemptive Relief

September 27, 2016.

I. Introduction

    On July 5, 2016, Banque Centrale de Compensation, which conducts 
business under the name LCH SA (``LCH SA'') filed with the Securities 
and Exchange Commission (``Commission'') a Form CA-1 seeking 
registration as a clearing agency under Section 17A of the Securities 
Exchange Act of 1934 \1\ (``Act'') and Rule 17Ab2-1 thereunder.\2\ 
Specifically, LCH SA is seeking to provide central counterparty 
(``CCP'') services for U.S. persons for security-based swaps, in 
particular single-name credit default swaps (``CDS''), through its 
CDSClear business unit. LCH SA also is seeking exemptive relief (i) 
from Sections 5 and 6 of the Act \3\ with respect to its end-of-day 
pricing process; (ii) from Section 19(b) of the Act \4\ and Rule 19b-4 
thereunder \5\ with respect to filing certain proposed rule changes 
relating to its non-U.S. business; (iii) from Rules 17Ad-22(c)(2) and 
17Ad-22(c)(2)(iii) \6\ with respect to its annual audited financial 
statements; and (iv) Rule 17a-22 \7\ with respect to requirements to 
provide the Commission with physical copies of certain materials.\8\ 
The Commission is publishing this notice to solicit comments from 
interested persons regarding LCH SA's Form CA-1 and Request for 
Exemptive Relief.\9\ The Commission will consider any comments it 
receives in making its determination of whether to grant LCH SA's 
application for registration as a clearing agency and Request for 
Exemptive Relief.
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    \1\ 15 U.S.C. 78q-1.
    \2\ 17 CFR 240.17Ab2-1(a).
    \3\ 15 U.S.C. 78e and 78f.
    \4\ 15 U.S.C. 78s(b).
    \5\ 17 CFR 240.19b-4.
    \6\ 17 CFR 240.17Ad-22(c)(2) and 17 CFR 240.17Ad-22(c)(2)(iii).
    \7\ 17 CFR 240.17a-22.
    \8\ See Letter from Christophe H[eacute]mon, CEO, LCH SA, to 
Brent J. Fields, Secretary, Securities and Exchange Commission 
(August 9, 2016) (hereinafter ``Request for Exemptive Relief'').
    \9\ The descriptions set forth in this notice regarding the 
structure and operations of LCH SA have been derived from 
information contained in LCH SA's Form CA-1 application. The 
application and exhibits thereto for which LCH SA has not requested 
confidential treatment are available on the Commission's Web site at 
www.sec.gov/rules/other.shtml.
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II. LCH SA Form CA-1 Application

    LCH SA's Form CA-1 application and accompanying exhibits contain 
information regarding LCH SA and its CDSClear operations.\10\ Set forth 
below is a summary of certain aspects of LCH SA's Form CA-1 
application.
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    \10\ Schedule A to LCH SA's Form CA-1 includes a description of 
the risk management procedures utilized by LCH SA. Exhibit A 
contains information about the ownership and governance structure of 
LCH SA. Exhibit B contains a list of LCH SA's officers and senior 
managers of LCH SA and the CDSClear business unit. Exhibit C 
includes a narrative and graphic descriptions of LCH SA's 
organizational structure. Exhibit E includes copies of the CDS 
Clearing rulebook, procedures and articles of association. Exhibit J 
provides a description of CDSClear's services and functions.
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A. Overview of LCH SA

    LCH SA maintains its principal office in Paris, France and is a 
wholly-owned subsidiary of LCH.Clearnet Group Limited (``LCH Group''), 
a limited company incorporated under the laws of England and Wales.\11\ 
LCH Group is majority owned by the London Stock Exchange Group plc 
(``LSEG''). In its home jurisdiction, LCH SA is the only CCP in France 
and is regulated as a bank and a CCP under French law by the 
Autorit[eacute] des March[eacute]s Financiers, Autorit[eacute] de 
Contr[ocirc]le Prudentiel et de R[eacute]solution, and Banque de 
France.\12\ In addition, LCH SA is a CCP authorized to offer clearing 
services in the European Union pursuant to the European Market 
Infrastructure Regulation (``EMIR'') and also is registered with the 
CFTC as a derivatives clearing organization (``DCO'') to provide 
clearing services for broad-based index CDS to U.S. members and their 
customers.\13\
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    \11\ See LCH SA Form CA-1, Exhibit A at 1.
    \12\ See generally, LCH SA Form CA-1, Exhibit J-3 (LCH SA 
CDSClear Service Description) Section 2.3.
    \13\ Id.
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    LCH SA offers clearing services for derivatives, exchange-traded 
futures and options, cash equities and fixed income and energy 
instruments through three lines of CCP services: EquityClear, 
CommodityClear, and RepoClear.\14\ These services constitute LCH SA's 
``non-U.S. business'' in that they operate entirely outside the United 
States and do not have any U.S. clearing members. LCH SA's CDS clearing 
services are located in the CDSClear business unit. While all clearing 
services are provided from within the same legal entity, CDSClear is 
``ring-fenced'' as it has its own rulebook, policies and procedures, 
risk management framework, risk management personnel, default fund, 
waterfall, default management process, operations department, and 
certain information technology resources.\15\ Registration with the 
Commission as a clearing agency would permit LCH SA to offer single-
name CDS clearing services to U.S. persons through its CDSClear 
business unit. LCH SA currently offers index CDS and single-name CDS 
clearing services to non-U.S. persons in Europe and is authorized to 
offer index CDS clearing services to U.S. clearing members and their 
customers under its DCO registration.
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    \14\ See generally, LCH SA Form CA-1, Exhibit C.
    \15\ See generally, LCH SA Form CA-1, Exhibit C.
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B. LCH SA Membership Standards and Enforcement of Rules

1. Membership Standards
    LCH SA has established requirements concerning membership. These 
requirements are used to accept, deny, or condition any person's 
participation in LCH SA's clearing services as a member and include 
standards for financial responsibility, operational capacity, business 
experience, and creditworthiness.\16\ Members must comply with these 
requirements on an ongoing basis.\17\
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    \16\ See generally, LCH SA Form CA-1, Exhibit E-4 (LCH SA CDS 
Rule Book) Section 2.2.1.
    \17\ See generally, LCH SA Form CA-1, Exhibit E-4 (LCH SA CDS 
Rule Book) Section 2.2.2.
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    With respect to financial responsibility, LCH SA's rulebook 
contains net capital requirements that, among other things, establish 
minimum net capital requirements for members that may be scalable based 
on the risk

[[Page 68075]]

the members introduce to LCH SA. Regarding operational capacity and 
business experience requirements, a member must be able to demonstrate 
that it has sufficient expertise in clearing activities, that its 
systems and operations are sufficiently reliable and capable of 
supporting the performance of the member in meeting its obligations 
(including having sufficient facilities, equipment, personnel, hardware 
and software systems), and that it has appropriate banking 
arrangements.\18\ To assess a member's creditworthiness, LCH SA uses an 
internal credit scoring framework to determine the member's credit risk 
based on financial and qualitative factors.\19\
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    \18\ See generally, LCH SA Form CA-1, Exhibit E-4 (LCH SA CDS 
Rule Book) Section 2.2.1.
    \19\ See generally, LCH SA Form CA-1, Exhibit E-4 (LCH SA CDS 
Rule Book) Section 2.2.4.1.
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    LCH SA imposes several monitoring and reporting obligations on its 
members to ensure ongoing compliance with its membership obligations. 
LCH SA monitors on an ongoing basis certain indicators of its members, 
including CDS spreads, long-term credit ratings, and equity returns. 
Each member is required to notify LCH SA in writing of material changes 
to itself or its operations, such as changes in the direct or indirect 
controlling ownership, reduction in capital of more than 10%, the 
occurrence of insolvency proceedings, the default of any of the 
member's clients, and any change to the member's systems or operations 
that materially impact the member's ability to meet its obligations as 
a member. Furthermore, members are required to provide to LCH SA 
audited financial statements on an annual basis, as well as interim 
financial statements during the course of the year.\20\
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    \20\ See generally, LCH SA Form CA-1, Schedule A at 9; See also 
Exhibit E-4 (LCH SA CDS Rule Book) Sections 2.3.1 and 2.3.2.
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2. Capacity To Enforce Rules and Discipline Members
    LCH SA has established rules to monitor for members' breaches of 
its rules, enforce its rules, and discipline members. Additionally, as 
noted above, CDSClear members are required to notify LCH SA of certain 
breaches relating to financial or operational capacity, and are 
required to submit to inspections and audits by LCH SA.\21\ In the 
event that a member breaches its obligations, LCH SA may impose certain 
risk-reducing measures, including restricting a member's ability to 
submit additional transactions for clearing, or impose disciplinary 
sanctions, such as fines or public censure.\22\ LCH SA also may suspend 
or terminate the membership in certain circumstances such as upon a 
member's material breaches of its obligations, upon suspension or 
termination of a member's membership in another clearing house, or upon 
the occurrence of an event that materially impacts the member's ability 
to meet its obligations under relevant membership agreements.\23\
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    \21\ See generally LCH SA Form CA-1, Exhibit E-4 (LCH SA CDS 
Clearing Rule Book) Section 2.3.3.
    \22\ See generally, LCH SA Form CA-1, Exhibit E-4 (LCH SA 
Rulebook) Section 2.4.1; and Exhibit E-6.8 (LCH SA CDS Clearing 
Proceedings, Section 8: Disciplinary Proceedings) Section 8.4.
    \23\ See generally, LCH SA Form CA-1, Exhibit E-4 (LCH SA 
Rulebook) Section 2.4.1.1.
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    LCH SA also has established pre-defined procedures for the 
disciplining of members and for affording a member or a person with 
respect to the CDSClear services the opportunity to dispute a decision 
by LCH SA to discipline the member or to deny, prohibit, or limit the 
person's access to the CDSClear services. These disciplinary 
proceedings set forth procedures regarding investigations of a member 
by LCH SA, which require LCH SA to send a written notice to the member 
regarding the details of the investigation and an opportunity for the 
member to object. Following an investigation, LCH SA must provide a 
written report of its findings to the member and, where LCH SA has 
determined to impose disciplinary proceedings, form a disciplinary 
committee and provide the member the opportunity to respond to the 
report. The disciplinary committee is required to provide the member 
with notice of its decision and any sanctions imposed. Members are 
permitted to dispute the decision and imposition of sanctions, and to 
submit such dispute to arbitration or litigation, as applicable.\24\
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    \24\ See generally, LCH SA Form CA-1, Exhibit E-6.8 (LCH SA CDS 
Clearing Procedures, Section 8: Disciplinary Proceedings).
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C. Governance

    LCH SA is governed by its board of directors, which determines LCH 
SA's business strategies and oversees implementation of those 
strategies. The Terms of Reference of LCH SA's Board of Directors 
require the board to be composed of between 3 and 18 members, and must 
include a non-executive chair; executive directors; independent non-
executive members; at least one director representing LSEG; and a 
director nominated by a user of LCH SA.\25\
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    \25\ See generally, LCH SA Form CA-1, Exhibit A; and Exhibit A.2 
(LCH SA Terms of Reference of the Board of Directors) Section 1.
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    LCH SA has an audit committee tasked with determining whether LCH 
SA management has put in place adequate internal control systems and 
assisting the board in reviewing LCH SA's audited financial statements, 
regulatory compliance, risk governance framework, internal control 
environment and information security and business continuity plans.\26\ 
LCH SA also has established a risk committee to consider LCH SA's risk 
appetite, tolerance and strategy. The risk committee reviews on an 
annual basis LCH SA's operational risk policy and regularly reviews 
reports prepared by LCH SA's risk management department.\27\ 
Representatives of members and customers are directly represented on 
the Risk Committee.\28\
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    \26\ See generally, LCH SA Form CA-1, Exhibit A-5 (LCH SA Terms 
of Reference of the Audit Committee of the Board of Directors) 
Section 1.
    \27\ See generally, LCH SA Form CA-1, Exhibit A-4 (LCH SA Terms 
of Reference of the Risk Committee of the Board of Directors).
    \28\ See generally, Exhibit A-2 (LCH SA Terms of Reference of 
the Risk Committee of the Board of Director) Section 1.1.
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    In addition to these internal governance structures, LCH SA also 
has a process for considering external views regarding certain aspects 
of its CDSClear service. Specifically, when considering a material 
change to the CDSClear service, LCH SA engages certain banks (some of 
which are members), which also bear part of the cost of developing and 
operating CDSClear, in a consultative process where such banks may 
provide recommendations to LCH SA. Ultimately, LCH SA maintains 
authority for operating CDSClear, and may choose to not implement any 
recommendations.\29\
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    \29\ See generally, LCH SA Form CA-1, Exhibit A
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D. Safeguarding of Securities and Funds

1. Margin
    LCH SA employs a risk-based margin methodology specific to its 
CDSClear service to calculate its exposures to CDSClear members and to 
set initial margin requirements.\30\ Specifically, LCH SA uses a Value 
at Risk (``VaR'') model to calculate member margin requirements 
sufficient to cover losses under normal market conditions with a 99.7% 
confidence interval. The margin model takes into account a variety of 
risks, including changes to credit spreads, recovery rates, and 
interest rates. In addition to its initial margin requirements, to 
manage the risk of price fluctuations occurring in a member's open 
position, LCH SA and members are required to make cash payments to meet 
a variation margin

[[Page 68076]]

requirement.\31\ LCH SA performs an independent model validation 
annually. In addition to margin requirements derived from its model, 
LCH SA imposes margin requirements on members to address position 
concentrations, wrong way risk, and illiquid positions. LCH SA also 
requires additional margin from members with lower credit standing.\32\
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    \30\ See generally, LCH SA Form CA-1, Exhibit H-1 (LCH SA 
Audited Financial Statements for the Year Ended 31 December 2015) at 
18.
    \31\ See generally, LCH SA Form CA-1, Exhibit H-1 (LCH SA 
Audited Financial Statements for the Year Ended 31 December 2015) at 
18; See also, LCH SA Form CA-1, Exhibit E-4 (CDS Clearing Rule Book) 
Section 4.2.5; and Exhibit E-6 (LCH.Clearnet SA CDS Clearing 
Procedures, Section 2--Margin and Price Alignment Interest).
    \32\ See generally, LCH SA Form CA-1, Exhibit H-1 (LCH SA 
Audited Financial Statements for the Year Ended 31 December 2015) at 
18; and Exhibit J-3 (CDSClear Service Description) Section 9.1.
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    LCH SA requires each member to post collateral to satisfy its 
margin requirement to allow LCH SA to manage its risk exposure. LCH SA 
limits the collateral that is eligible to cash and securities with low 
credit, liquidity, and market risk, and applies haircuts to collateral 
posted in the form of securities.\33\
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    \33\ See generally, LCH SA Form CA-1, Exhibit E-4 (CDS Clearing 
Rule Book) Sections 4.2.6.3 and 4.2.6.4; See also, LCH SA Form CA-1, 
Exhibit E-6.3 (LCH SA CDS Clearing Procedures Section 3--Collateral 
and Cash Payment) Section 3.9.
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2. Default Fund
    Apart from its initial and variation margin requirements, LCH SA 
has established a mutualized default fund exclusively for the CDSClear 
service and keeps it separate from the default funds for LCH SA's other 
services.\34\ The default fund is only available for use to cover 
losses as a result of, and following, an event of default with respect 
to a member. LCH SA sizes the default fund to cover the theoretical 
losses associated with the default of the largest two members in 
extreme but plausible market conditions plus an additional buffer.\35\ 
Each clearing member is required to contribute to the default fund in 
an amount that is the greater of the clearing member's proportionate 
share of the total default fund based on the margin requirements 
related to positions held in the CDSClear service, or the minimum 
contribution of [euro]10 million.\36\ LCH SA calibrates its default 
fund, and member default fund requirements, on a monthly basis.\37\ LCH 
SA's Risk Committee reviews results of stress testing related to the 
CDSClear default fund on at least a quarterly basis.\38\
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    \34\ See generally, LCH SA Form CA-1, Exhibit E-4 (LCH SA CDS 
Clearing Rule Book) Article 4.4.1.1.
    \35\ See generally, LCH SA Form CA-1, Exhibit E-4 (LCH SA CDS 
Clearing Rule Book) Sections 4.4.1.1 and 4.4.1.2.
    \36\ See generally, LCH SA Form CA-1, Exhibit E-4 (LCH SA CDS 
Clearing Rule Book) Article 4.4.1.3.
    \37\ See generally, LCH SA Form CA-1, Exhibit J-3 (LCH SA 
CDSClear Service Description) Section 11.1.
    \38\ See generally, Exhibit A-4 (LCH SA Terms of Reference of 
the Risk Committee of the Board of Directors) Section 9.1.
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3. Investment and Liquidity Risk Management
    To appropriately manage cash collateral posted by members to 
satisfy margin and default fund requirements, LCH SA has an investment 
risk policy that is designed to ensure that collateral is invested 
securely. LCH SA's policies require investments be made with 
counterparties that meet certain minimum credit standards (based on LCH 
SA's internal credit assessment).\39\
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    \39\ See generally, LCA SA Form CA-1, Exhibit H-1 (LCH SA 
Audited Financial Statements for the Year Ended 31 December 2015) at 
20.
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    LCH SA monitors and measures liquidity resources and requirements 
for the entity as a whole, and calculates its liquidity needs daily. In 
addition to the cash collateral it holds and its capital as immediate 
liquidity resources, during liquidity stress events, LCH SA also can 
access French central bank liquidity through the Banque de France and 
also maintains other secured financing facilities.\40\
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    \40\ See generally, LCH SA Form CA-1, Exhibit H-1 (LCH SA 
Audited Financial Statements for the Year Ended 31 December 2015) at 
23-24.
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4. Default Management Process
    To manage losses incurred in the event of a member default, LCH 
SA's default management process sets forth the steps LCH SA would take 
in the event of such an occurrence.\41\ Upon the declaration of an 
event of default, LCH SA's default management process begins to 
minimize losses and disruption by attempting to hedge against market 
risk and transfer client positions to non-defaulting members, and to 
dispose of the defaulting member's portfolio through a competitive 
auction process within the five-business-day default management process 
period.\42\ Default losses resulting from a CDSClear member's default 
can be covered only by using the financial resources collected for 
CDSClear pursuant to the default waterfall.\43\
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    \41\ See generally, LCH SA Form CA-1, Exhibit E-4 (LCH SA CDS 
Clearing Rule Book, Appendix 1 ``CDS Default Management Process'').
    \42\ See generally, LCH SA Form CA-1, Schedule A at 10-11; see 
also Exhibit E-4 (LCH SA CDS Clearing Rule Book) Appendix 1, Section 
2.1.
    \43\ See generally, LCH SA Form CA-1, Exhibit E-4 (LCH SA CDS 
Clearing Rule Book) Section 4.4.1.
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    Under the default waterfall, the defaulting member's initial 
margin, variation margin and additional margins are first used to cover 
losses. If these resources are insufficient to cover the losses, the 
defaulting member's default fund contribution is applied. To the extent 
that losses are still not covered, LCH SA would use a portion of its 
own capital (in the amount established in the CDSClear default 
waterfall pursuant to the CDSClear rulebook) to cover remaining losses. 
If losses exceed the financial resources used up to this point, LCH SA 
may then access the default fund contributions of non-defaulting 
members and also may impose additional default fund contribution 
assessments against non-defaulting members. If pre-funded resources and 
assessments are insufficient to cover losses within a five business-day 
period, LCH SA may impose, on a pro rata basis, reductions in daily 
settlement payments owed to non-defaulting members (``variation margin 
haircutting''), subject to certain limits. The entire default 
management process, including the use of variation margin haircutting, 
is intended to be completed within five business days following the 
declaration of a default.\44\ At any time during the default management 
process, if LCH SA determines that it would not have sufficient 
resources to meet obligations arising from the default auction or 
auctions in accordance with its default waterfall, LCH SA must early 
terminate all open contracts and proceed to wind down the CDSClear 
service pursuant to the terms set forth in its Rulebook.\45\
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    \44\ See generally, LCH SA Form CA-1, Exhibit J-3 (CDSClear 
Service Description) Section 11.2.
    \45\ See Generally, LCH SA Form CA-1, Exhibit E-4 (LCH SA CDS 
Clearing Rule Book) Appendix 1, Clause 2.1.4 and 8.1.
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E. Business Continuity

    LCH SA maintains a business continuity plan as a part of the LCH 
Group's business continuity model, which is designed to recover core 
clearing services within a two-hour period following a point of failure 
and to enable LCH SA to perform end-of-day settlement of transactions 
on the same business day. The business continuity plan includes 
policies and procedures regarding threat assessment and monitoring, and 
anticipated responses in the event that such threats materialize, 
including the switching over to alternative systems and secondary 
sites.\46\
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    \46\ See generally, LCH SA Form CA-1, Exhibit K-2 (Group 
Business Continuity Management Policy).

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[[Page 68077]]

F. Fee Structure

    LCH SA charges transaction fees linked to products and annual 
membership fees, which are generally usage-based and apply equally to 
all members using LCH SA's CDSClear service. LCH SA also imposes annual 
account structure fees for individually segregated accounts and omnibus 
segregated accounts.\47\
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    \47\ See generally LCH SA Form CA-1, Exhibit Q.
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III. Requests for Exemptive Relief

A. Exemptive Relief From Sections 5 and 6 of the Act

    LCH SA requests exemptive relief from the requirements of Sections 
5 and 6 of the Act with respect to its ``forced trade'' mechanism that 
is used in the calculation of mark-to-market prices for open positions 
in cleared single-name CDS and exemptive relief for each of its 
CDSClear members from the requirements of Section 5 of the Act with 
respect to their participation in the ``forced trade'' mechanism.\48\ 
LCH SA represents that, as part of its clearing and risk management 
processes for single-name CDS, it would compute the end-of-day 
settlement price for each contract in which any of its members has a 
cleared position, based on off-market prices submitted by its members 
and use those prices to establish a daily mark on which to base margin 
calculations. To promote the integrity of these price submissions, LCH 
SA would employ a ``forced trade'' mechanism pursuant to which its 
members would be required to execute CDS trades based on their price 
submissions.\49\
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    \48\ See Request for Exemptive Relief, at 2.
    \49\ See Request for Exemptive Relief, at 3-4.
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    LCH SA states that, absent an exemption, this activity would cause 
LCH SA's ``forced trade'' mechanism to meet the criteria of Rule 3b-16 
under the Act \50\ and, as a result, would require it to either 
register with the Commission as a national securities exchange under 
Sections 5 and 6 of the Act or obtain an exemption from registration. 
Additionally, any member that is a broker or dealer would not be 
permitted to use any facility of an exchange or to effect any 
transaction in a security, or to report any such transaction, unless 
the exchange were registered as a national securities exchange or an 
exemption were available.\51\
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    \50\ 17 CFR 240.3b-16.
    \51\ See Request for Exemptive Relief at 4.
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B. Exemptive Relief From Section 19(b) of the Act and Rule 19b-4 
Thereunder

    LCH SA requests exemptive relief from the requirements of Section 
19(b) of the Act and Rule 19b-4 thereunder with respect to filing 
certain proposed rule changes that (i) primarily affect its clearing 
operations with respect to the non-U.S. business and (ii) do not 
significantly affect any CDSClear operations or any rights or 
obligations of LCH SA with respect to the CDSClear services or persons 
using such services.\52\ LCH SA states that the rule filing 
requirements under Section 19(b) of the Act and Rule 19b-4 thereunder 
do not adequately consider circumstances in which a foreign clearing 
agency that is registered with the CFTC for the purposes of clearing 
index CDS (which are swaps) and with the Commission for the purpose of 
clearing single-name CDS (which are security-based swaps). 
Specifically, such foreign clearing agencies may have completely 
offshore businesses that provide clearing services to non-U.S. persons 
outside of the United States that would not otherwise implicate the 
Commission's registration requirements under the Act (nor those of the 
CFTC under the Commodity Exchange Act).\53\ As a condition of this 
requested relief, LCH SA has represented that it would provide notice 
of its non-U.S. business rule changes to Commission staff once duly 
approved by its national competent authorities in lieu of filing such 
changes under Section 19(b) and Rule 19b-4.
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    \52\ See Request for Exemptive Relief at 2-3.
    \53\ See Request for Exemptive Relief at 5-12.
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C. Exemptive Relief From Rules 17Ad-22(c)(2) and 17Ad-22(c)(2)(iii)

    LCH SA requests exemptive relief from the requirements of Rule 
17Ad-22(c)(2) and Rule 17Ad-22(c)(2)(iii) with respect to its financial 
statements for fiscal years 2014 and 2015.\54\ LCH SA represents that 
pursuant to the listing rules to which its indirect parent company LSEG 
is subject LCH SA is not permitted to publish its own financial 
statements prior to the publication of LSEG's financial statements.\55\ 
Given the scope of LSEG's business activities, LCH SA represents that 
it is unlikely that LSEG would be able to publish its financial 
statements within 60 days of the end of its fiscal year, nor would LCH 
SA have control over when such financial statements would ultimately be 
published.\56\
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    \54\ See Request for Exemptive Relief at 4.
    \55\ See Request for Exemptive Relief at 15.
    \56\ Id.
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    In addition, LCH SA represents that it currently prepares its 
financial statements in accordance with International Financial 
Reporting Standards (``IFRS'') and its financial statements are audited 
in accordance with International Standards on Auditing (``ISA''). 
Additionally, under French law, LCH SA states that it is required to 
maintain two statutory auditing firms that jointly sign the annual 
audited accounts.\57\ LCH SA represents that, because it would be 
required upon being registered with the Commission as a clearing agency 
to have its 2014 and 2015 annual financial statements audited in 
accordance with Public Company Accounting Oversight Board standards, 
its 2014 and 2015 financial records would need to be re-analyzed 
(including reviewing past judgments regarding accounting figures), and 
that re-opening its audit files in such a manner would present 
practical, and potentially legal challenges as well as impose material 
burdens on LCH SA, its staff and auditors, to complete such work prior 
to the end of this calendar year.\58\ LCH SA states that such 
challenges would be further exacerbated if the relief requested were to 
be granted only with respect to LCH SA's 2014 financial statements, as 
auditing its 2015 financial statements in isolation would cause 
auditors to use unaudited 2014 figures in their auditing report for the 
2015 financial statements.\59\
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    \57\ See Request for Exemptive Relief at 14.
    \58\ Id.
    \59\ Id.
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D. Exemptive Relief From Rule 17a-22

    LCH SA requests exemptive relief from the requirements of Rule 17a-
22 to file with the Commission certain materials made available to its 
participants regarding LCH SA's non-U.S. business units where such 
materials (i) primarily affect LCH SA's clearing operations with 
respect to the non-U.S. business lines, and (ii) do not significantly 
affect any CDSClear operations or any rights or obligations of LCH SA 
with respect to its CDSClear services or persons using the CDSClear 
services.\60\ Additionally, LCH SA requests relief from the requirement 
of Rule 17a-22 to file physical copies with respect to materials 
primarily concerning its CDSClear services. LCH SA requests instead, 
that it be permitted to provide the Commission with electronic 
submissions for such materials.\61\
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    \60\ See Request for Exemptive Relief at 15-16.
    \61\ Id.
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning LCH SA's Form CA-1 and Request for Exemptive 
Relief. The Commission requests comment

[[Page 68078]]

regarding whether granting the Request for Exemptive Relief is 
appropriate, whether the conditions required for granting such relief, 
as set forth in the Request for Exemptive Relief, are appropriate, and 
whether any other conditions should be required. In particular, the 
Commission requests comment concerning the appropriateness of granting 
exemptive relief under Section 19(b) and Rule 19b-4 thereunder as 
described above, in connection with LCH SA's non-U.S. business. 
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 rule-comments@sec.gov. Please include 
File Number 600-36 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 600-36. 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 of submission. The Commission will post all 
comments on the Commission's internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the Form CA-1 and the Request for Exemptive 
Relief, all subsequent amendments, all written statements with respect 
to LCH SA's Form CA-1 and the Request for Exemptive Relief that are 
filed with the Commission, and all written communications relating to 
the Form CA-1and the Request for Exemptive Relief 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.
    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 600-36 and should 
be submitted on or before November 2, 2016.

    By the Commission.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-23747 Filed 9-30-16; 8:45 am]
 BILLING CODE 8011-01-P


