
[Federal Register Volume 82, Number 41 (Friday, March 3, 2017)]
[Notices]
[Pages 12481-12484]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-04089]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80114; File No. SR-LCH SA-2017-001]


Self-Regulatory Organizations; LCH SA; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change, Security-Based Swap 
Submission, or Advance Notice To Adopt Revised Fee Schedule and 
Establish Annual Fixed Fee for General Members

February 27, 2017.
    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 February 17, 2017, 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 
primarily prepared 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.
---------------------------------------------------------------------------

    \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).

---------------------------------------------------------------------------

[[Page 12482]]

I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change, Security-Based Swap Submission, or Advance Notice

    The proposed rule change will: (1) Modify the annual fixed fee that 
covers all self-clearing activity for a Clearing Member \5\ and its 
affiliates under the Unlimited Tariff, (2) establish an annual fixed 
fee for all General Members that participate in the CDS Clearing 
Services under the Introductory Tariff, and (3) remove the volume-based 
discounts currently in effect for the client clearing activities of the 
CDS Clearing Service.
---------------------------------------------------------------------------

    \5\ Capitalized terms not defined herein are defined in LCH SA's 
Rulebook, available at http://www.lch.com/rules-regulations/rulebooks/sa.
---------------------------------------------------------------------------

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change, Security-Based Swap Submission, or 
Advance Notice

    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, Security-Based Swap Submission, or 
Advance Notice

1. Purpose
    The purpose of the proposed rule change is to: (1) Modify the 
annual fixed fee that covers all self-clearing activity for a Clearing 
Member and its affiliates under the Unlimited Tariff, (2) establish an 
annual fixed fee for all General Members that participate in the CDS 
Clearing Services under the Introductory Tariff, and (3) remove the 
volume-based discounts currently in effect for the client clearing 
activities of the CDS Clearing Service.
Unlimited Tariff
    The proposed rule change will reduce the annual fixed fee for 
General Members that covers all self-clearing activity for Clearing 
Members and their affiliate(s) that have opted for the Unlimited 
Tariff. Currently, General Members that participate in the CDS Clearing 
Service can elect to pay an annual fixed fee of [euro]2,250,000 (the 
``Unlimited Tariff''), which covers all self-clearing fees for the 
Clearing Member and its affiliates. Clearing Members that select to pay 
this fixed fee are not charged any variable fee that would otherwise be 
assessed with each cleared CDS on their house activity.
    General Clearing Members that do not select the Unlimited Tariff 
fall under the Introductory Tariff and are currently charged a variable 
volume based self-clearing fee. The fee is calculated and charged per 
million gross notional cleared (EUR/USD, as applicable) and varies 
depending on the type of CDS cleared, i.e., European indices, European 
single names, US indices, US single names. The amount of variable fees 
paid for trades cleared by the General Clearing Member and its 
affiliates under the Introductory Tariff annually is currently capped 
at [euro]2,250,000.
    The rule change will reduce the annual fixed fee to be paid by 
General Members that select the Unlimited Tariff from [euro]2,250,000 
to [euro]2,000,000. The cap on annual fees paid by General Members that 
select the Introductory Tariff will similarly be reduced from 
[euro]2,250,000 to [euro]2,000,000, and will include the fixed fee 
along with all variable fees for the Clearing Member and its 
affiliates.
    LCH SA believes that the reduced fee more accurately reflects the 
proportionate costs and expenses that LCH SA will incur in connection 
with self-cleared transactions following the introduction of mandatory 
clearing of OTC derivatives and the anticipated increase in CDS client 
clearing activities.
Annual Clearing Fee (Introductory Tariff)
    In addition, the proposed rule change will establish an annual 
fixed fee for all General Members that participate in the CDS Clearing 
Service under the Introductory Tariff. The annual fixed fee is 
independent from and in addition to the self-clearing and client 
clearing variable fees currently charged, but will count toward the 
[euro]2,000,000 cap described above. Currently, General Members that 
participate in the CDS Clearing Service pay either the Unlimited 
Tariff, which covers all self-clearing fees for the Clearing Member and 
its affiliates, or the Introductory Tariff, which is calculated per 
million gross notional cleared (EUR/USD, as applicable) and varies 
depending on the type of CDS cleared, i.e., European indices, European 
single names, US indices, US single names. Therefore, Clearing Members 
under the Introductory Tariff with no clearing activity have full 
access to the CDS Clearing Service resources, are consulted on 
potential rules, product and service changes, and benefit from 
unlimited support for training and system training at no cost.
    LCH SA believes that all General Members under the Introductory 
Tariff that have access to, and benefit from, the CDS Clearing Service 
resources should pay a fixed fee for such access, even if the General 
Member has no clearing activity. The rule change will require every 
General Member under the Introductory Tariff to pay an annual fixed fee 
of [euro]200,000, which will increase to [euro]400,000 for members with 
more than [euro]15 billion gross notional in clearing activity per 
year, across self-clearing or clearing for clients. One-twelfth of the 
fee will be charged each month, and a pro-rata amount will be applied 
for Clearing Members starting or resigning during the calendar year.
Volume-Based Discount
    Lastly, the proposed rule change will remove the volume-based 
discounts that had been in effect for CDS client clearing activities 
since early 2014. Currently, clients that participate in the CDS 
Clearing Service are charged a clearing fee per EUR/USD million gross 
notional cleared as follows:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
                     European products                        Base fees
------------------------------------------------------------------------
Index (per million)........................................      [euro]4
Single Name (per million)..................................     [euro]12
------------------------------------------------------------------------
                       U.S. Products                          Base fees
------------------------------------------------------------------------
Index (per million)........................................           $5
Single Name (per million)..................................          $17
------------------------------------------------------------------------

    In order to encourage client clearing of CDS back in 2014 ahead of 
the mandatory clearing requirement at the time, LCH SA has been 
offering volume-based discounts as follows:

------------------------------------------------------------------------
  Discounts for clients will be                          Monthly gross
  implemented as follows: Band          Benefit        notional cleared
------------------------------------------------------------------------
Band A..........................  Base Fee..........  [euro]0 to [euro]2
                                                       billion.
Band B..........................  16% fee discount..  [euro]2 billion to
                                                       [euro]6 billion.
Band C..........................  25% fee discount..  [euro]6 billion+.
------------------------------------------------------------------------


[[Page 12483]]

    With mandatory clearing of CDS now becoming effective in 2017 in 
Europe, LCH SA believes it is no longer necessary or appropriate to 
provide these discounts in light of the costs and expenses that LCH SA 
will incur in providing the CDS Clearing Service to clients. The rule 
change, therefore, will remove the volume-based discounts for CDS 
client clearing activities.

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\ With respect to the Unlimited Tariff, 
LCH SA has determined that the reduction in the Unlimited Tariff fixed 
fee for General Members with respect to self-clearing activity on 
behalf of the Clearing Member and its affiliates is reasonable and 
appropriate given the costs and expenses to LCH SA. With CDSClear now 
reaching a maturity stage in its development and the introduction of 
mandatory clearing of OTC derivatives in 2017, which will result in an 
increase in CDS client clearing activities, it is appropriate that the 
costs and expenses that LCH SA will incur in providing the CDS Clearing 
Service are shared more broadly among General Members and their clients 
that participate in the service. For the same reasons, LCH SA has 
determined that the cap on self-clearing fees, inclusive of the annual 
fixed fee, applicable to General Members electing the Introductory 
Tariff, should be lowered to the same amount as the revised Unlimited 
Tariff.
---------------------------------------------------------------------------

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

    With respect to the annual fixed fee for General Members under the 
Introductory Tariff, LCH SA has determined that implementing an annual 
fixed fee for all General Members that participate in the CDS Clearing 
Service under the Introductory Tariff (which fee is separate from and 
in addition to the self-clearing and client clearing variable fees 
currently assessed), is reasonable and appropriate given the costs and 
expenses to LCH SA in providing the services to General Members. The 
fee assures that all General Members that benefit from the CDS Clearing 
Service pay an appropriate fee for such services, such as being 
consulted on potential rules, product and service changes, as well as 
benefiting from unlimited support for product and system training and 
testing, without regard to whether such General Members engage in CDS 
clearing activities. The proposed rule changes, therefore, are 
consistent with the requirements of Section 17A of the Act \7\ and 
regulations thereunder applicable to it, because they provide for the 
equitable allocation of reasonable fees, dues, and other charges among 
clearing members and market participants by ensuring that General 
Members and their clients pay reasonable fees and dues for the services 
that LCH SA provides.
---------------------------------------------------------------------------

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

    With respect to the removal of volume-based discounts, LCH SA has 
determined that removing the volume-based discounts for CDS client 
clearing activities is reasonable and appropriate, given the costs and 
expenses to LCH SA in providing such services. The elimination of 
volume-based discounts will assure that clients pay an appropriate 
proportionate share of the costs and expenses that LCH SA will incur in 
providing the CDS Clearing Service.

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\ LCH SA does 
not believe that the proposed rule change would impose any burden on 
competition. As noted above, LCH SA believes that the reduction in the 
annual Tariffs assessed on General Members with respect to self-
clearing activity are reasonable and appropriate, as the Tariffs will 
apply equally to all General Members that self-clear CDS. Additionally, 
LCH SA believes that an annual fixed fee for all General Members that 
participate in the CDS Clearing Service under the Introductory Tariff, 
which fee is separate from and in addition to the self-clearing and 
client clearing variable fees currently assessed, is appropriate in 
light of the expenses incurred by LCH SA in providing its services. 
Further, LCH SA believes that removing the volume-based discounts for 
CDS client clearing activities is reasonable and appropriate, as the 
clearing fees will apply equally to all clients that participate in the 
CDS Clearing Service.
---------------------------------------------------------------------------

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

    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

    The foregoing proposed rule change has become effective upon filing 
pursuant to Section 19(b)(3)(A) \9\ of the Act and Rule 19b-4(f)(2) 
\10\ 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 proposed 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.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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:
     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 SR-LCH SA-2017-001 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-2017-001. 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 Web site (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

[[Page 12484]]

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 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. Copies of such filings will also be available 
for inspection and copying at the principal office of LCH SA and on LCH 
SA's Web site at http://www.lch.com/asset-classes/cdsclear. 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 SR-LCH SA-2017-001 and 
should be submitted on or before March 24, 2017.
---------------------------------------------------------------------------

    \11\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-04089 Filed 3-2-17; 8:45 am]
BILLING CODE 8011-01-P


