[Federal Register Volume 85, Number 6 (Thursday, January 9, 2020)]
[Notices]
[Pages 1185-1189]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-00118]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87886; File No. SR-LCH SA-2019-012]


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 3, 2020.
    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 27, 2019, Banque Centrale de Compensation, which conducts 
business under the name LCH SA (``LCH SA''), filed with the Securities 
and Exchange Commission (``Commission'') the proposed rule change 
described in Items I, II and III below, which Items have been prepared 
primarily by LCH SA. LCH SA filed the proposal pursuant

[[Page 1186]]

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.
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    \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, Security-Based Swap Submission, or Advance Notice

    The proposed rule change is to review and modify the current fee 
grid applied by LCH SA CDSClear.
    The text of the proposed rule change has been annexed [sic] as 
Exhibit 5.

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, Security-Based Swap Submission, or 
Advance Notice

1. Purpose
    The purpose of the proposed fee changes is for LCH SA CDSClear to 
(1) modify the annual fixed fee amount that covers all Index and Single 
Name CDS self-clearing activity for a General Clearing Member and its 
affiliates under the Unlimited Tariff, and (2) revise the CDSClear fee 
grid set up for the Options clearing service for both General and 
Select Members.
    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]1,700,000...  No Variable Fee                                                                 Covers all self-
                                                                                                                                       clearing
                                                                                                                                       Corporate and
                                                                                                                                       Financials CDS
                                                                                                                                       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
                                                                                                                                       1,700,000 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.
--------------------------------------------------------------------------------------------------------------------------------------------------------


       Current Options Tariff Including Fee Rebate: General Member
------------------------------------------------------------------------
 
------------------------------------------------------------------------
                             General Member
------------------------------------------------------------------------
Introductory Tariff............  Cover only one legal entity (no
                                 affiliate coverage).
                                ----------------------------------------
    Clearing Fees..............             $15  Per million of option
                                                  notional on U.S.
                                                  Indices.
                                       [euro]15  Per million of option
                                                  notional on European
                                                  Indices.
        Floor on clearing            [euro]150k  Per calendar year (no
         fees``.                                  pro-rating).
        Cap on Clearing fees...      [euro]600k  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.
                                ----------------------------------------
    Fixed fee (annual).........      [euro]375k  Per calendar year (no
                                                  pro-rating).
    Discounted Rates *.........       [euro]50k  After discount rate of
                                                  86.67% applied to the
                                                  Fixed fee amount if
                                                  Index Swaptions
                                                  notional cleared per
                                                  Clearing Member group
                                                  strictly above
                                                  [euro]12 billion.
                                      [euro]75k  After discount rate of
                                                  80.00% applied to the
                                                  Fixed fee amount if
                                                  Index Swaptions
                                                  notional cleared per
                                                  Clearing Member group
                                                  strictly above [euro]6
                                                  billion but equal or
                                                  below [euro]12
                                                  billion.
                                     [euro]125k  After discount rate of
                                                  67.00% applied to the
                                                  Fixed fee amount if
                                                  Index Swaptions
                                                  notional cleared per
                                                  Clearing Member group
                                                  strictly above [euro]0
                                                  but equal or below
                                                  [euro]6 billion.
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 20-
                                                  Dec-19.
------------------------------------------------------------------------
* 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) Valid for 2019 only; and......................................

[[Page 1187]]

 
    (iv) Index Swaptions notional cleared for the determination of the
     discount rate to be observed from the regulatory effective date of
     the rebate..
------------------------------------------------------------------------


  Current Options Tariff Including Fee Rebate: Select Member and Client
------------------------------------------------------------------------
 
------------------------------------------------------------------------
                              Select Member
------------------------------------------------------------------------
Introductory Tariff............  Cover only one legal entity (no
                                 affiliate coverage).
                                ----------------------------------------
    Clearing Fees..............             $18  Per million of option
                                                  notional on U.S.
                                                  Indices
                                       [euro]18  Per million of option
                                                  notional on European
                                                  Indices.
        Cap on Clearing fees...      [euro]600k  Per calendar year (no
                                                  pro-rating).
                                ----------------------------------------
Unlimited Tariff...............  Covers all affiliates of a given
                                 Clearing Member Group.
                                 Covers all clearing fees for Credit
                                 Option House activity for both iTraxx
                                 and CDX.NA underlying index families.
                                 Excludes any potential future EEP usage
                                 fees.
                                ----------------------------------------
    Fixed fee (annual).........      [euro]400k  Per calendar year (no
                                                  pro-rating).
    Discounted Rates *.........       [euro]50k  After discount rate of
                                                  87.50% applied to the
                                                  Fixed fee amount if
                                                  Index Swaptions
                                                  notional cleared per
                                                  Clearing Member group
                                                  strictly above
                                                  [euro]12 billion.
                                      [euro]75k  After discount rate of
                                                  81.25% applied to the
                                                  Fixed fee amount if
                                                  Index Swaptions
                                                  notional cleared per
                                                  Clearing Member group
                                                  strictly above [euro]6
                                                  billion but equal or
                                                  below [euro]12
                                                  billion.
                                     [euro]125k  After discount rate of
                                                  68.75% applied to the
                                                  Fixed fee amount if
                                                  Index Swaptions
                                                  notional cleared per
                                                  Clearing Member group
                                                  per year strictly
                                                  above [euro]0 but
                                                  equal or below [euro]6
                                                  billion.
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 20-
                                                  Dec-19.
------------------------------------------------------------------------
* Cumulative conditions for the Fee rebate:
------------------------------------------------------------------------
    (v) Application to the Unlimited Tariff only;.......................
    (vi) application to all Clearing Members registering to the Index
     Swaptions clearing service (registration letter or application file
     signature date); and.
    (vii) Valid for 2019 only; and......................................
    (viii) 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 U.S.
                                                  Indices.
                                       [euro]20  Per million of option
                                                  notional on European
                                                  Indices.
------------------------------------------------------------------------

    As specified in the new fee grid attached [sic] under Exhibit 5, 
LCH SA is proposing to amend the CDSClear fee grid from January 1st, 
2020.
    The proposed fee changes are driven by the will:

--For the Index and Single Names Unlimited Tariff: To reflect a 
transition to a more matured phase of development of the CDSClear 
service, and
--for the Options fee grid: to adjust the discount bands and rates 
following a beginning of uptake of the options service, and to ensure 
coherence in the maximum amount of fees payable between the 
Introductory and the Unlimited Tariffs.
(1) Change the Index and Single Names Unlimited Tariff for General 
Members From [euro]1,700,000 per Year to [euro]1,300,000 per Year for 
2020
    CDSClear currently offers an Unlimited Tariff for General Members 
\5\ that covers all self-clearing Corporate and Financials CDS Index 
and Single Names activity for a Clearing Member group and its 
affiliates for an annual fixed fee of [euro]1,700,000 (no variable 
fees).
---------------------------------------------------------------------------

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

    The proposed change consists in decreasing the annual fixed fee 
amount to [euro]1,300,000 per year. This fixed fee will still cover all 
clearing fees for Corporate and Financials Index and Single Names CDS 
House activity for all affiliates of a given Clearing Member group.
(2) Change the Options Unlimited Tariff for Both General and Select 
Members
    As specified in the new LCH CDSClear options fee grid attached 
[sic] below in Appendix, the annual fixed fee covering all clearing 
fees for Credit Index Options House activity for all affiliates of a 
given Clearing Member group remains set in 2020 to [euro]375,000 for 
General Members and [euro]400,000 for Select Members, but it is 
proposed to change the discount based notional bands and rates as 
follows:
General Member Discount Bands and Rates
-- Change the bounds on the annual options notional cleared for the 
lowest band from strictly above [euro]0bn but equal to or below 
[euro]6bn into strictly above [euro]6bn but equal to or below 
[euro]13.5bn, and the corresponding discount rate from 66.67% 
(equivalent to an annual fixed fee of [euro]125,000) to 60% (equivalent 
to an annual fixed fee of [euro]150,000);
-- Change the bounds on the annual options notional cleared for the 
middle band from strictly above [euro]6bn but equal to or below 
[euro]12bn into strictly above [euro]13.5bn, but keep the corresponding 
discount rate at 80% (equivalent to an annual fixed fee of 
[euro]75,000); and
-- Remove the highest band from the fee grid.
Select Member Discount Bands and Rates
-- Change the bounds on the annual options notional cleared for the 
lowest band from strictly above [euro]0bn but equal to or below 
[euro]6bn into strictly above [euro]6bn but equal to or below 
[euro]13.5bn, and the corresponding discount rate from 68.75% 
(equivalent to an annual fixed fee of [euro]125,000) to 62.5% 
(equivalent to an annual fixed fee of [euro]150,000);
-- Change the bounds on the annual options notional cleared for the 
middle band from strictly above [euro]6bn but equal to or below 
[euro]12bn into strictly above [euro]13.5bn, but keep the corresponding 
discount rate at 81.25% (equivalent to an annual fixed fee of 
[euro]75,000); and

[[Page 1188]]

-- Remove the highest band from the fee grid.
(3) Change the Options Introductory Tariff for Both General and Select 
Members
    The Options Introductory Tariff for both General and Select Members 
covers only the legal entity that is registering to the service and is 
based on variable fees with an annual floor (for General Members only) 
and cap on the total variable fees paid. The only change proposed to 
this Introductory Tariff is to align the annual cap with the fixed fee 
in the Unlimited Tariff as follows:

-- For General Members, decrease the annual cap on variable fees from 
[euro]600,000 to [euro]375,000
-- For Select Members, decrease the annual cap on variable fees from 
[euro]600,000 to [euro]400,000.
(4) Additional Changes to the Options Fee Grid for Both General and 
Select Members
    The following conditions will be applicable for both General and 
Select Members:

-- In-year switches between Introductory and Unlimited Tariff are not 
permitted, and
-- The one-off onboarding fee will remain set to [euro]30,000 but 
waived until 30 April 2020.
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 CDS Unlimited Tariff 
for General Members, LCH SA has determined in consultation with its 
clearing members that the reduction in the annual fixed fee 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 therefore requires a lower 
investment to develop new functionalities/services than in the past.
    Regarding the proposed changes to the Options clearing service fee 
grid, after consultation with its Clearing Members, LCH SA has 
determined that both its General and Select Members still needed to be 
incentivized to further grow their usage of the Options clearing 
service, and thus to maintain a volume-based discount fee scheme for 
its Options Unlimited Tariff in which the cost of clearing options 
decreases as more volumes are cleared. In order to make the link 
between Unlimited Tariff and Introductory Tariff coherent between the 
Index & Single Names fee grid on one hand and the Option fee grid on 
the other hand, LCH SA has also set the cap for its Options 
Introductory Tariff at the same level than the fixed fee of the Option 
Unlimited Tariff, and thus decreased it from [euro]600k to respectively 
[euro]375k for General Members and [euro]400k for Select Members. 
Additionally, both General and Select Clearing Members will not have 
the ability to switch from one type of Tariff to the other (Unlimited 
to Introductory or vice-versa) in-year.
    Finally, the one-off Onboarding Fee to the Options clearing service 
will remain set to [euro]30,000 but the waiving period will be extended 
until 30 April 2020.
    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 Index Swaptions that remains not mandatory.
    Additionally, the proposed volume based discount scheme for the 
Options Unlimited Tariff will be available to all CDSClear Clearing 
Member Groups. Similarly, the proposed Index and Single Names Unlimited 
Tariff will be available to all General Members of the CDSClear 
service. This annual fixed fee reduction 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.
    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 
feedback sought from CDSClear members. No comment or question has been 
received following this consultation. 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:

[[Page 1189]]

     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-2019-012 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
    All submissions should refer to File Number SR-LCH SA-2019-012. 
This file number should be included on the subject line if email is 
used. To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's internet website (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for website 
viewing and printing in the Commission's Public Reference Room, 100 F 
Street NE, Washington, DC 20549, on official business days between the 
hours of 10:00 a.m. and 3:00 p.m. Copies of such filings will also be 
available for inspection and copying at the principal office of LCH SA 
and on LCH SA's website at https://www.lch.com/resources/rules-and-regulations/proposed-rule-changes-0. All comments received will be 
posted without change. Persons submitting comments are cautioned that 
we do not redact or edit personal identifying information from comment 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-LCH 
SA-2019-012 and should be submitted on or before January 30, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-00118 Filed 1-8-20; 8:45 am]
 BILLING CODE 8011-01-P


