[Federal Register Volume 82, Number 234 (Thursday, December 7, 2017)]
[Notices]
[Pages 57803-57808]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-26320]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82194; File No. SR-LCH SA-2017-010]


Self-Regulatory Organizations; LCH SA; Notice of Filing of 
Proposed Rule Change, Security-Based Swap Submission, or Advance Notice 
Relating to the Implementation of the Markets in Financial Instruments 
Regulation

December 1, 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 November 21, 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 
(``Proposed Rule Change'') described in Items I, II and III below, 
which Items have been primarily prepared 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

    LCH SA is proposing to amend its (i) CDS Clearing Rulebook (the 
``Rulebook'') and CDS Clearing Procedures (the ``Procedures'') to make 
conforming and clarifying changes necessary to implement certain 
provisions of the Markets in Financial Instruments Regulation 
(``MiFIR'') \3\ that are applicable to central counterparties 
(``CCPs'') authorized under the European Markets Infrastructure 
Regulation (``EMIR'') \4\ (each such CCP, an ``authorized CCP''). In 
particular, the Proposed Rule Change implements Article 29 of MiFIR, 
which requires authorized CCPs to establish effective systems, 
procedures and arrangements to ensure that transactions in cleared 
derivatives transactions are submitted and accepted for clearing on a 
straight-through processing (``STP'') basis, and Article 30 of MiFIR, 
which requires authorized CCPs to establish indirect clearing 
arrangements with respect to exchange-traded derivatives (``ETDs'') 
that are of ``equivalent effect'' to the corresponding requirements 
under EMIR.
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    \3\ Regulation (EU) No 600/2014 of the European Parliament and 
of the Council of 15 May 2014 on markets in financial instruments 
and amending Regulation (EU) No 648/2012.
    \4\ Regulation (EU) No 648/2012 of the European Parliament and 
of the Council of 4 July 2012 on OTC derivatives, central 
counterparties and trade reporting.
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    Regulatory technical standards have also been adopted to set more 
specific requirements that authorized CCPs must meet to comply with 
MiFIR. The regulatory technical standards for straight-through 
processing (``RTS 26'') were adopted in late 2016.\5\ More recently, 
the European Commission adopted regulatory technical standards, which 
align the indirect clearing requirements under EMIR and MiFIR 
(``Indirect Clearing RTS'').\6\
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    \5\ Commission Delegated Regulation (EU) 2017/582 of 29.6.2016 
supplementing Regulation (EU) No 600/2014 of the European Parliament 
and of the Council with regard to regulatory technical standards 
specifying the obligation to clear derivatives traded on regulated 
markets and timing of acceptance for clearing.
    \6\ Commission Delegated Regulation (EU) of 22.9.2017 amending 
Commission Delegated Regulation (EU) No 149/2013 with regard to 
regulatory technical standards on indirect clearing arrangements. A 
separate, but identical, set of RTS apply to indirect clearing of 
exchange-traded derivatives. See, Commission Delegated Regulation 
(EU) of 22.9.2017 supplementing Regulation (EU) No 600/2014 with 
regard to regulatory technical standards on indirect clearing 
arrangements.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, LCH SA included statements 
concerning the purpose of and basis for the Proposed Rule Change and 
discussed any comments it received on the Proposed Rule Change. The 
text of these statements may be examined at the places specified in 
Item IV below. LCH SA has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of such statements.

A. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

1. Purpose
a. Overview
    As noted above, the principal purpose of the Proposed Rule Change 
is to amend LCH SA's Rulebook and Procedures to implement the 
provisions of MiFIR applicable to authorized CCPs and the Indirect 
Clearing RTS. MiFIR takes effect January 3, 2018 and it is expected 
that the Indirect Clearing RTS will take effect on the same date.
    Specifically, Article 29 of MiFIR requires authorized CCPs to 
establish effective systems, procedures and arrangements to ensure that 
transactions in cleared derivatives are submitted and accepted for 
clearing on a straight-through processing basis. Article 4 of EMIR and 
the Indirect Clearing RTS set out specific compliance requirements for 
entities that participate in ``indirect clearing arrangements'' in 
connection with OTC derivatives. As an authorized CCP, LCH SA is 
required to amend its rules and procedures to give effect to these 
provisions of MiFIR and the Indirect Clearing RTS.
    Set out below is an explanation of the relevant provisions of RTS 
26 and the Indirect Clearing RTS followed in each case by a description 
of the amendments LCH SA has made to its Rulebook and Procedures to 
give effect to each RTS. Capitalized terms not otherwise defined herein 
have the meanings ascribed to them in the Rulebook.
b. Straight-Through Processing
    RTS 26 establishes the specific requirements with which authorized 
CCPs, trading venues \7\ and clearing

[[Page 57804]]

members \8\ must comply in order to ensure that transactions in cleared 
derivatives are submitted and accepted for clearing ``as soon as 
technologically practicable using automated systems'', as required by 
Article 29(2) of MiFIR. LCH SA must comply with the RTS 26 requirements 
applicable to authorized CCPs. For ease of reference these requirements 
can be conceptually distinguished into: (i) A CCP's information 
requirements; (ii) cleared derivatives transactions concluded on a 
trading venue; (iii) cleared derivatives transactions concluded 
bilaterally; and (iv) resubmission of cleared derivatives transactions 
in the event of clerical error or technical problems.
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    \7\ The term ``trading venue'' as used in RTS 26 refers to EU-
based venues only (i.e., regulated markets, multilateral trading 
facilities and organized trading facilities). Accordingly, third-
country venues (e.g., U.S. swap execution facilities, security-based 
swap execution facilities, designated contract markets and national 
securities exchanges) are not required to comply with the RTS 26 
provisions applicable to trading venues. Notwithstanding this 
definition, the STP amendments described herein will apply with 
respect to all derivatives transactions concluded on swap execution 
facilities and designated contract markets registered with the U.S. 
Commodity Futures Trading Commission (``CFTC'') and the definition 
of the term ``Trading Venue'' has been amended accordingly. See, 
Section 1.1.1 of the Rulebook.
    \8\ The term ``clearing member'' is not defined in RTS 26. 
However, Article 29 of MiFIR refers to ``investment firms which act 
as clearing members in accordance with'' EMIR. The term ``investment 
firm'' refers only to those EU firms which are required to be 
authorized under the revised Markets in Financial Instruments 
Directive (``MiFID II'') and, therefore, third-country firms that 
are clearing members of authorized CCPs (e.g., SEC-registered broker 
dealers (``BDs'') and futures commission merchants (``FCM'') 
registered with the CFTC) are not required to comply with the RTS 26 
provisions applicable to clearing members. Nonetheless, it should be 
noted that BDs and FCMs are subject to comparable requirements under 
SEC and CFTC regulations. See, 17 CFR 240.15Fi-2(f)(2); 17 CFR 1.74 
and 17 CFR 23.501. In any event, the STP requirements to which LCH 
SA is subject, discussed herein, apply with respect to all 
derivatives transactions submitted for clearing by any Clearing 
Member, including a Clearing Member that is a BD or FCM.
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i. CCP Information Requirements
    Article 1(2) of RTS 26 requires an authorized CCP to detail in its 
rules the information it needs from trading venues and counterparties 
to cleared derivatives transactions, and the format such information 
must take, in order for the authorized CCP to accept that transaction 
for clearing.
    The Rulebook currently provides that all clearing members must be 
participants of at least one Approved Trade Source System, i.e., a 
middleware provider, which receives Original Transaction Data relating 
to Intraday Transactions from the relevant Clearing Members or the 
relevant Trading Venue. The Approved Trade Source System is then 
responsible for ensuring that the data is then submitted to LCH SA. To 
give effect to the CCP information requirements of Article 1(2) of RTS 
26, Article 3.1.4.1 of the Rulebook has been amended to confirm that 
the data relating to such submission must be made in a format 
acceptable to, or required by, the relevant Approved Trade Source 
System.
ii. Cleared Derivatives Transactions Concluded on a Trading Venue
    For a cleared derivatives transaction concluded on a trading venue, 
Article 3(4) of RTS 26 requires an authorized CCP to accept or reject 
such transaction for clearing within 10 seconds of receipt of the 
relevant information from the trading venue.\9\ Where the authorized 
CCP determines to reject the transaction for clearing, it is required 
to inform the clearing member and the trading venue on a real-time 
basis.
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    \9\ As a CFTC-registered derivatives clearing organization, LCH 
SA is currently subject to this same requirement in connection with 
its CDS Clearing Service. See, 17 CFR 39.12(b)(7); CFTC Staff 
Guidance of Straight-Through Processing, dated September 26, 2013, 
available at http://www.cftc.gov/idc/groups/public/@newsroom/documents/file/stpguidance.pdf.
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    LCH SA has traditionally imposed a series of controls on Intraday 
Transactions, including the following:
     Eligibility Controls, which verify the completeness of the 
information relating to the Original Transaction and to determine 
whether the Original Transaction meets LCH SA's Eligibility 
Requirements;
     Client Transaction Checks, which verify whether, in 
respect of an Original Transaction that is a Client Transaction, the 
relevant Clearing Member has consented to the registration of the trade 
on behalf of its Client; and
     Notional and Collateral Checks, which verify whether 
accepting the trade for clearing would exceed the relevant Clearing 
Member's Maximum Notional Amount and/or whether the Clearing Member has 
sufficient collateral available to satisfy the margin requirement 
associated with clearing the trade.
    LCH SA will be able to identify cleared derivatives transactions 
concluded on a trading venue--referred to as ``Trading Venue 
Transactions'' in the revised Rulebook--and has amended Section 5.3 of 
the Procedures to confirm that, in accordance with Article 3(4) of RTS 
26, the relevant Clearing Member(s) are not required to provide their 
consent to the acceptance of a Trading Venue Transaction for clearing.
    LCH SA will, however, apply the Notional and Collateral Checks to 
Trading Venue Transactions. Article 3.1.4.5 of the Rulebook has been 
amended to make clear that all stages of the intraday clearing process 
must occur within the timeframe required by Applicable Law, meaning 
that LCH SA must perform the Notional and Collateral Checks within the 
10 second time-frame prescribed by Article 3(4) of RTS 26.
    Finally, Article 3.1.5.1 of the Rulebook has been amended to 
clarify that notice of a Rejected Transaction will be provided to the 
relevant Trading Venue and/or Approved Trade Source System in 
accordance with Applicable Law.
iii. Cleared Derivatives Transactions Concluded Bilaterally
    For a cleared derivatives transaction concluded bilaterally between 
counterparties, Article 4(2) of RTS 26 requires an authorized CCP to 
send the information it receives from the relevant counterparties to 
the relevant clearing member(s) within 60 seconds of receipt of such 
information. Article 4(3) of RTS 26 requires the authorized CCP to 
accept or reject such transaction for clearing within 10 seconds of 
receipt of the acceptance or non-acceptance by such clearing member(s). 
Where the authorized CCP determines to reject the transaction for 
clearing, it is required to inform the clearing member on a real-time 
basis.
    Cleared derivatives transactions concluded bilaterally will, in 
accordance with Section 5.3 of the Procedures, be subject to the Client 
Transaction Checks referred to above. In particular, LCH SA will, upon 
successful completion of the Eligibility Controls, send a Consent 
Request to the relevant Clearing Member(s). Pursuant to Article 3.1.4.5 
of the Rulebook, LCH SA is required to send each such Consent Request 
in accordance with the timeframe required by Applicable Law (i.e., 60 
seconds).
    A Clearing Member then has a choice in how to respond to the 
Consent Request. It may opt for a so-called ``Automatic Take-Up 
Process'', whereby the Clearing Member effectively pre-approves 
specific Clients for automatic acceptance of Consent Requests; in such 
circumstances, the Clearing Member will not be required to respond to 
the Consent Request. A Clearing Member may also opt for a ``Manual 
Take-Up Process'', whereby it must affirmatively respond within the 
time frame required by Applicable Law (i.e., 60 seconds) or otherwise 
by the end of the real-time clearing session on that day. LCH SA will 
then accept or reject the trade, and make the relevant notifications, 
within the timeframe required under Applicable Law.
    Finally, Article 3.1.5.1 of the Rulebook has been amended to 
clarify that notice of a Rejected Transaction will be provided to the 
relevant Clearing Member and/or Approved Trade Source System in 
accordance with Applicable Law.

[[Page 57805]]

iv. Resubmission
    Where the non-acceptance of a cleared derivatives transaction for 
clearing is due to a clerical or technical error, Article 5(3) of RTS 
26 permits the trade to be resubmitted within one hour, provided the 
original counterparties to the trade agree to such resubmission. 
Article 3.1.5.1 of the Rulebook has been amended to state that a 
Rejected Transaction may be resubmitted for clearing in accordance with 
Applicable Law.
v. Treatment of Backloading Transactions
    STP requirements apply to ``cleared derivatives transactions'', 
which are defined in Article 29(2) of MiFIR to include derivatives that 
are concluded on an EU regulated market, all OTC derivatives that are 
subject to an EMIR mandatory clearing requirement, and all other 
derivatives which are agreed by the relevant counterparties to be 
cleared. LCH SA has amended the Rulebook to designate Backloading 
Transactions as out of scope of MiFIR's STP requirements. Specifically, 
Article 3.1.6.3 now provides that LCH SA is entitled to assume that any 
Backloading Transaction submitted for clearing by LCH SA was either 
entered into prior to the effective date of MiFIR (i.e., January 3, 
2018) or is otherwise not subject to an EMIR mandatory clearing 
requirement and that the parties to the Backloading Transaction did not 
agree at the time of execution for the Backloading Transaction to be 
subject to clearing.
c. Indirect Clearing Arrangements
i. Indirect Clearing RTS
    Article 4(3) of EMIR requires that indirect clearing arrangements 
should not increase counterparty risk and ensure protections that are 
of ``equivalent effect'' to the protections for client clearing set out 
in Articles 39 and 48 of EMIR. The term ``indirect clearing 
arrangement'' refers to a set of relationships--also called a 
``chain''--where at least two intermediaries are interposed between an 
end-client and the relevant authorized CCP. The most basic indirect 
clearing chain therefore involves the following four entities: An 
authorized CCP; a clearing member of the authorized CCP; the client of 
the Clearing Member that is itself an intermediary (``Direct Client''); 
and the client of such Direct Client (``Indirect Client''). Longer 
chains are permitted in certain circumstances.
    The majority of the obligations under the Indirect Clearing RTS 
fall to Clearing Members and Direct Clients. However, authorized CCPs 
must comply with new requirements relating to account structures, 
default management and risk management.\10\ Because indirect clearing 
was a concept introduced in EMIR, the Rulebook already had a number of 
features to implement the initial set of indirect clearing 
requirements. LCH SA has made the following conforming amendments to 
reflect the updated requirements of the Indirect Clearing RTS.
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    \10\ The indirect clearing arrangements for OTC derivatives 
described herein, in particular, the requirements relating to 
account structures and default management, generally will not be 
applicable to Clearing Members that are FCM Clearing Members or U.S. 
Clearing Members, i.e., BDs. In this regard, in connection with the 
CDS Clearing Service, FCM Clearing Members will continue to be 
required to maintain cleared swaps customer accounts in accordance 
with the segregation requirements set out in Section 4d(f) of the 
Commodity Exchange Act and Part 22 of the CFTC's rules, 17 CFR 22.1 
et seq. Similarly, a U.S. Clearing Member that is not also an FCM 
Clearing Member will be required to maintain customer security-based 
swap accounts in accordance with 17 CFR 240.15c3-3.
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ii. Indirect Client Account Structures
    An authorized CCP must permit a clearing member to open and 
maintain at least the following two types of accounts for its Direct 
Client(s) that have Indirect Client(s):
     One omnibus segregated account for all Indirect Clients of 
all such Direct Clients (``CCP OSA''); and
     one gross (position and margin) segregated account per 
Direct Client for all Indirect Clients of that Direct Client that 
choose gross segregation (a ``CCP GOSA'').
    Therefore an authorized CCP is expected to maintain at least: (i) 
One CCP OSA per clearing member; plus (ii) the requisite number of 
Direct Client-specific CCP GOSAs per clearing member.
    The Indirect Clearing RTS do not specify whether the CCP OSA must 
be held either gross or net for calling margin or for position-keeping 
purposes, leaving the specific arrangements to the discretion of each 
authorized CCP. Finally, and for the avoidance of doubt, CCP OSAs and 
CCP GOSAs are separate from any Direct Client-specific individual or 
omnibus accounts opened pursuant to Article 39 of EMIR.
    The principal indirect clearing-related amendment to the Rulebook 
is the introduction of two new account structures that reflect the 
requirements of the Indirect Clearing RTS. Specifically, LCH SA has 
introduced a new CCM Indirect Client Net Segregated Account Structure 
(i.e., a CCP OSA) as well as a new CCM Indirect Client Gross Segregated 
Account Structure (i.e., a CCP GOSA), collectively referred to as CCM 
Indirect Client Segregated Account Structures.
    A CCM Indirect Client Net Segregated Account Structure contains the 
following elements:
     A CCM Client Trade Account per CCM Indirect Client that 
belongs to such Account Structure. A CCM Client Trade Account is an 
account that records the Cleared Transactions registered in the name of 
the relevant CCM Indirect Client;
     a single CCM Indirect Client Net Segregated Margin 
Account, in which all Cleared Transactions of all the CCM Indirect 
Clients in that Structure are netted to create a single set of Open 
Positions per contract for purposes of calculating a single, overall 
initial and variation margin requirement in respect of such Account 
Structure; and
     a single CCM Client Collateral Account, which records the 
Collateral provided by the CCM to satisfy the CCM Client Margin 
Requirement(s) in respect of the Account Structure and for purposes of 
identifying any CCM Client Excess Collateral in respect of the Account 
Structure.
    A CCM Indirect Client Gross Segregated Account Structure contains 
the following elements:
     A CCM Client Trade Account per CCM Indirect Client that 
belongs to such Account Structure;
     a CCM Indirect Client Gross \11\ Segregated Margin Account 
per CCM Indirect Client that belongs to such Account Structure, in 
which the Cleared Transactions of such CCM Indirect Client are netted 
to create a set of Open Positions for purposes of calculating initial 
and variation margin requirements in respect of such CCM Indirect 
Client; and
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    \11\ Pursuant to an email from LCH SA's representative dated 
November 30, 2017, staff in the Division of Trading and Markets 
corrected an incorrect reference to a ``CCM Indirect Client Net 
Account.'' LCH SA intended to refer to a ``CCM Indirect Client Gross 
Account.''
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     a single CCM Client Collateral Account, which records the 
Collateral provided by the CCM to satisfy the CCM Client Margin 
Requirement(s) in respect of the Account Structure and for purposes of 
identifying any CCM Client Excess Collateral in respect of the Account 
Structure.
    Title V, Chapter 2 of the Rulebook has been amended to specify the 
circumstances in which such Account Structures may be opened. In 
particular, Article 5.2.1.3 has been amended to clarify that a given 
CCM Client that provides indirect clearing services to

[[Page 57806]]

CCM Indirect Clients must be allocated to one CCM Indirect Client Net 
Segregated Account Structure but may, upon request, be allocated to one 
CCM Indirect Client Gross Segregated Account Structure.
iii. Default Management
    The Indirect Clearing RTS primarily address a Clearing Member's 
default management of an insolvent Direct Client and therefore do not 
specifically address an authorized CCP's treatment of CCP OSAs and CCP 
GOSAs in the event of a Clearing Member default. However, the better 
view appears to be that these accounts should be held to the extent 
possible in accordance with the requirements of EMIR Articles 39 and 
48, which leads to the following obligations for an authorized CCP.
    Porting/Leapfrog Payment. In line with the EMIR requirement that 
indirect clearing arrangements be of ``equivalent effect'' to client 
clearing protections, in the event of a Clearing Member default, a CCP 
is expected to be able to attempt to port the positions of Indirect 
Clients in a CCP GOSA to a backup Direct Client or, failing that, to 
attempt to make a ``leapfrog'' payment over the insolvency estate of 
the defaulted Clearing Member directly to the Direct Client for the 
account of its Indirect Clients.
    Value Segregation Only. To facilitate the porting and leapfrog 
arrangements set out above, it will be necessary for an authorized CCP 
to maintain separate collateral pools for each CCP GOSA. However, in 
line with Article 39(10) of EMIR, the term ``assets''--which must be 
segregated--refers to collateral held to cover a given set of positions 
and includes the right to the return/transfer of equivalent assets. 
Accordingly, a CCP is not required to identify the specific collateral 
assets posted in respect of a given Indirect Client in a CCP GOSA but 
instead may rely on ``value segregation'' only.
    The Rulebook addresses the treatment of CCM Indirect Client 
Segregated Account Structures in the event of the default of the CCM, 
the CCM Client and of LCH SA itself.
    CCM Default.
     In the event of a CCM default, Clause 4.3 of the CDS 
Default Management Process states that LCH SA will attempt in the first 
instance to port the Client Cleared Transactions of a CCM Indirect 
Gross Segregated Account Client to a single Backup Clearing Member, 
provided that certain conditions are met, including that the Backup 
Clearing Member has unconditionally agreed to act as Backup Clearing 
Member and the instruction is received within the prescribed 
timeframe--referred to as the ``Porting Window''--established by LCH SA 
for this purpose. In the alternative, LCH SA may liquidate the existing 
Client Cleared Transactions and re-establish them with the Backup 
Clearing Member. LCH SA will also, upon instruction, transfer the 
associated Collateral to the Backup Clearing Member. There will be no 
porting attempted for Client Cleared Transactions in a CCM Indirect 
Client Net Segregated Account Structure.
     In respect of Client Cleared Transactions in a CCM 
Indirect Client Net Segregated Account Structure (or where porting is 
not achieved in respect of Client Cleared Transactions in a in a CCM 
Indirect Client Gross Segregated Account Structure), Clause 4.4.3 of 
the CDS Default Management Process requires LCH SA to calculate an 
amount--called the ``CDS Client Clearing Entitlement''--equal to: (1) 
The pro rata share of the liquidation of the Non-Ported Cleared 
Transactions; plus (2) the pro rata share of the liquidation value of 
the Client Assets recorded in the relevant Client Collateral Account; 
minus (2) the pro rata share of the costs of any hedging undertaken; 
minus (4) the pro rata share of the costs, expenses and liabilities of 
LCH SA in implementing the CDS Client Default Management Process, in 
each case where such pro rata share is attributable to a given CCM 
Indirect Client. The relevant CDS Clearing Entitlement(s) will then be 
paid to the CCM Client of the defaulting CCM.
     Upon a CCM default, Article 4.3.3.1 of the Rulebook 
clarifies that CCM Indirect Clients belonging to a CCM Indirect Client 
Gross Segregated Account Structure bear no fellow-customer risk: only 
the value of the Collateral referable to a given CCM Indirect Client--
called the ``CCM Indirect Client Gross Account Balance''--will be 
available to satisfy any Damages attributable to the liquidation of any 
Non-Ported Cleared Transactions referable to such CCM Indirect Client. 
By contrast, all Collateral recorded in respect of a given CCM Indirect 
Client Net Segregated Account will be available to satisfy any Damages 
relating to the liquidation of any Non-Ported Cleared Transactions of 
any CCM Indirect Client belonging to such CCM Indirect Client Net 
Segregated Account.
    CCM Client Default. In the event of the default of a CCM Client 
that has CCM Indirect Clients, LCH SA's normal default management 
arrangements for CCMs will not apply. Instead, the defaulting CCM 
Client will be default managed by the CCM, which will determine whether 
to liquidate the Client Cleared Transactions registered in the relevant 
CCM Indirect Client Segregated Account Structures or to attempt to port 
the Client Cleared Transactions of the CCM Indirect Clients belonging 
to a CCM Indirect Client Gross Segregated Account Structure to a Backup 
Client. Porting may occur on a consolidated basis, i.e., where all the 
CCM Indirect Clients appoint a single Backup Client, or on a per-CCM 
Client Trade Account basis, i.e., where a given CCM Indirect Client 
appoints a single Backup Client specific to that CCM Indirect Client. 
Article 5.4.1.3 of the Rulebook provides that LCH SA will make the 
relevant transfers in its records at the instruction of the CCM 
undertaking the default management of its defaulting CCM Client.
    LCH SA Default. LCH SA has amended Article 1.3.1.9 of the Rulebook 
to clarify that, following a default by LCH SA, CCMs shall calculate a 
separate CCM Client Termination Amount in respect of each CCM Indirect 
Client Net Segregated Account Structure and each CCM Indirect Client 
Gross Segregated Account Structure it holds with LCH SA.
iv. Miscellaneous
    Article 3(3) of the Indirect Clearing RTS requires an authorized 
CCP to identify, monitor and manage any ``material risks'' arising from 
the provision of indirect clearing services that may affect the 
resilience of the authorized CCP to adverse market developments. In 
addition, Article 2(3) of the Indirect Clearing RTS state that an 
authorized CCP may not ``prevent the conclusion of'' indirect clearing 
arrangements that are entered into on reasonable commercial terms.
    Article 5.1.3.1 of the Rulebook has been amended to clarify that a 
CCM may permit its CCM Clients to offer clearing services to their CCM 
Indirect Clients provided certain conditions are met. Specifically, the 
contractual terms of the indirect clearing arrangements must comply 
with the relevant requirements of EMIR and MiFIR and must further 
provide for the establishment of CCM Indirect Client Segregated Account 
Structures (described in greater detail above) in accordance with the 
wishes of the relevant CCM Indirect Clients. LCH SA has also largely 
retained Article 5.1.3.2, which sets out the general terms on which LCH 
SA facilitates the offering of CDS Clearing Services to CCM Indirect 
Clients.
    Article 5.2.1.1 of the Rulebook also includes an express 
recognition that a given CCM Client may be acting in the

[[Page 57807]]

capacity of clearing its own proprietary transactions as well as in the 
capacity of providing clearing services to its CCM Indirect Clients. 
Finally, Title V, Chapter 3 of the Rulebook has been amended to provide 
for non-default transfers of all Client Cleared Transactions in a given 
CCM Indirect Client Segregated Account Structure (accompanied by the 
associated Client Assets upon request) or partial transfers of Client 
Cleared Transactions in a given CCM Indirect Client Segregated Account 
Structure (without the associated Client Assets) to the relevant 
accounts of a Receiving Clearing Member.
d. Certain Clarifying Amendments
    LCH SA has also made certain clarifying revisions to the Rulebook, 
Procedures and Clearing Notice as described below.
i. Auction Member Representative
    Various provisions of the CDS Default Management Process (Annex 1 
of the Rulebook) have been revised to clarify the responsibilities 
between a Non-Defaulting Clearing Member and the Auction Member 
Representative appointed by the Non-Defaulting Clearing Member to act 
in such Clearing Member's place in the competitive bidding process as 
described in Clause 5.4 of the CDS Default Management Process.
ii. Member Uncovered Risk
    The definition of ``Member Uncovered Risk'', now ``Group Member 
Uncovered Risk'', has been revised to take into account the relevant 
LCH Group Risk Policy, which considers whether Clearing Members belong 
to the same group for purposes of the relevant risk calculations. The 
revisions are set out in Section 4.4.1.2 and Section 4.4.1.8 of the 
Rulebook and Section 2.12, Section 2.16 and Section 6.4 of the 
Procedures.
iii. Calculation of Contributed Prices
    Section 5.18.2 of the Procedures has been revised to reflect 
changes made to the methodology with regard to the application of the 
bid-ask restraint in the calculation of contributed prices. In 
addition, the references to a particular time in the Rulebook regarding 
the price contribution process have been removed. Consequently, the 
definition of ``End of Day'' has been removed from the Rulebook. 
Article 4.2.7.7 of the Rulebook and Section 5.18.5 (b) and (d) of 
Procedure 5 have been amended accordingly.
iv. New Approved Trade Source System
    Clearing Notice no. 2017/064 regarding the Approved Trade Source 
Systems has been amended to add a new Approved Trade Source System 
which is Bloomberg Trade Facility Ltd.
2. Statutory Basis
    LCH SA has determined that Proposed Rule Change is consistent with 
the requirements of Section 17A of the Act \12\ and regulations 
thereunder applicable to it. In particular, the amendments implementing 
the MiFIR requirements relating to straight-through processing and the 
EMIR requirements relating to indirect clearing arrangements for OTC 
derivatives promote the prompt and accurate clearance and settlement of 
derivatives transactions and ensure the safeguarding of securities and 
funds that are within the custody or control of LCH SA, each within the 
meaning of Section 17A(b)(3)(F) of the Act.\13\
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    \12\ 15 U.S.C. 78q-1.
    \13\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Clearing Agency's Statement on Burden on Competition

    LCH SA does not believe the Proposed Rule Change would have any 
impact, or impose any burden, on competition. The Proposed Rule Change 
does not address any competitive issue or have any impact on the 
competition among central counterparties. LCH SA operates an open 
access model, and the Proposed Rule Change will have no effect on this 
model.

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:
     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-2017-010 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-2017-010. 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 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 the filing also will 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. 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-2017-010 and should 
be submitted on or before December 28, 2017.


[[Page 57808]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-26320 Filed 12-6-17; 8:45 am]
 BILLING CODE 8011-01-P


