[Federal Register Volume 86, Number 215 (Wednesday, November 10, 2021)]
[Notices]
[Pages 62573-62575]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-24528]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93522; File No. SR-LCH SA-2021-003]


Self-Regulatory Organizations; LCH SA; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Relating to Fees on 
Extension of Eligible Collateral

November 4, 2021.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on October 22, 2021, 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 prepared primarily by LCH SA. LCH SA filed the 
proposed rule change pursuant to Section 19(b)(3)(A) of the Act,\3\ and 
Rule 19b-4(f)(2) \4\ thereunder, so that the proposed rule change was 
effective upon filing with the Commission. The Commission is publishing 
this notice to solicit comments on the Proposed Rule Change from 
interested persons.
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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

    (a) Banque Centrale de Compensation, which conducts business under 
the name LCH SA, is proposing to update the current fee grid to be 
applied by LCH SA for the new scope of eligible securities collateral 
to be extended to government bonds issued by the following states and 
denominated in their domestic currencies: Australia, Canada, Denmark, 
Japan, Norway, Sweden and Switzerland \5\ (the ``Proposed Rule 
Change'').
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    \5\ Self-Regulatory Organizations; LCH SA; Order Approving 
Proposed Rule Change Relating to Eligible Collateral and Liquidity 
Risk Management, Exchange Act Release No. 34-93176 (Sept. 29, 2021); 
86 FR 55061 (Oct. 5, 2021). File No. SR-LCH SA-2021-002.
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    The text of the Proposed Rule Change has been annexed [sic] hereto 
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

1. Purpose
    LCH SA charges fees on collateral posted by its clearing members to 
cover the CCP margin requirements. The level of fees is defined based 
on a combination of various factors such as operational costs to manage 
a given type of collateral, ability to generate liquidity from a given 
type of collateral (and thus the associated impact on the CCP

[[Page 62574]]

liquidity profile) and commercial considerations such as competitive 
landscape. The extension of eligible collateral addresses members' 
demand for more flexibility and consistency with industry standards and 
market practices. This extension was designed in coherence with the 
clearing services offered by LCH SA, the profile of the membership and 
the risk policies, regulatory constraints and operational capacity LCH 
SA operates under.
    As per CDSClear current collateral fee grid (copied below), LCH SA 
already charges different fees depending on the type of securities, the 
way that such securities are deposited at the CCP as well as the type 
of activity these cover. For instance, for securities deposited under 
Full Title Transfer (FTT) by a clearing Member to meet the margin 
liabilities of its House account (self-clearing activity), LCH SA 
charges an 11bps fee on the notional of government bond securities 
whereas the charge is 13bps for Agencies and Supranational 
securities.\6\ Similarly, LCH SA charges a 10bps fee for both 
Government Bonds and Agencies/Supranational securities deposited under 
FTT by a clearing member covering its Clients' accounts activity.
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    \6\ Self-Regulatory Organizations; LCH SA; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Relating to 
Amendments to LCH SA's Fee Grid for Non Cash Collateral, Exchange 
Act Release No. 34-87536 (Nov. 14, 2019); 84 FR 64125 (Nov. 20, 
2019) (File No. SR-LCH SA-2019-010).

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                                                                                                               House                          Client
                                             Securities              Denominated in      ---------------------------------------------------------------
                                                                                          Triparty (bps)     FTT (bps)     Pledge (bps)        (bps)
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Government Securities (as listed in   France.................  EUR                                   9.5              11              15              10
 Haircut Schedule).                   Germany................  EUR                                   9.5              11              15              10
                                      Belgium................  EUR                                   9.5              11              15              10
                                      Netherlands............  EUR                                   9.5              11              15              10
                                      Italy..................  EUR                                   9.5              11              15              10
                                      Portugal...............  EUR                                   9.5              11              15              10
                                      Spain..................  EUR                                   9.5              11              15              10
                                      Austria................  EUR                                   9.5              11              15              10
                                      Finland................  EUR                                   9.5              11              15              10
                                      USA....................  USD                                   9.5              11              15              10
                                      UK.....................  GBP                                   9.5              11              15              10
Supranationals & Agencies...........  EFSB...................  EUR                                   9.5              13              15              10
                                      ESM....................  EUR                                   9.5              13              15              10
                                      EIB....................  EUR                                   9.5              13              15              10
                                      EU.....................  EUR                                   9.5              13              15              10
                                      IBRD...................  EUR                                   9.5              13              15              10
                                      KfW....................  EUR                                   9.5              13              15              10
                                      Rentenbank.............  EUR                                   9.5              13              15              10
Equities............................  As listed in Haircut     EUR                                   N/A              13             N/A             N/A
                                       Schedule.
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    From November 1st, 2021, LCH SA is proposing to extend the scope of 
instruments eligible as collateral to the government bonds issued by 
the following countries and denominated in their domestic currencies: 
Australia, Canada, Denmark, Japan, Norway, Sweden and Switzerland.
    As such, LCH SA needs to update its existing non-cash collateral 
fee grid for both House and Client clearing activities. As mentioned 
before, various factors are taken into consideration when defining the 
fee to be charged for a given security. For this initiative, LCH SA has 
considered a combination of elements such as the impossibility to use 
these securities as collateral with the European Central Bank (ECB) for 
liquidity management purposes, the relative appetite of the membership 
for this new collateral and the operational costs and constraints that 
the management of those securities create for the CCP (incl. their 
impact on LCH SA Liquidity Coverage Ratio).
    As specified in the fee grid attached [sic] as Exhibit 5, the 
purpose of the Proposed Rule Change is to define the fee to be charged 
for the new scope of eligible collateral (13bps for House and 10 bps 
for Client clearing activities). The difference between the fee charged 
for House versus Client collateral is mainly driven by commercial 
reasons in consultation with CDSClear clearing members. Client clearing 
of CDS is reasonably recent in Europe. Given the limited scope of CDS 
instruments and categories of buy-side counterparties included in the 
scope of the European Clearing Obligation for CDS, LCH SA believes that 
expanding the list of eligible collateral as well as setting a more 
attractive collateral fee for Clients of the CDSClear service will 
incentivise further buy-side firms to clear a bigger share of their 
Credit Derivatives portfolio.
    No amendments to the LCH SA CDS Clearing Rules are required for 
these changes to become effective.
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.\7\
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    \7\ 15 U.S.C. 78q-1(b)(3)(D).
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    LCH SA believes that its clearing fee change proposal is consistent 
with the requirements of Section 17A of the Act \8\ 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.
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    \8\ 15 U.S.C. 78q-1.
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    As explained in our approved filing LCH SA-2021-002,\9\ contrary to 
European government bonds, the new collateral scope is not eligible at 
the ECB to be used as collateral against cash in Euros, which in turn 
impacts how LCH SA monitors and manages its

[[Page 62575]]

liquidity resources. It therefore represents additional operational 
costs that are amongst other things captured in the pricing difference. 
That is why, the proposed fee change balances appropriately commercial 
conditions and the impacts on the liquidity of the CCP induced by 
additional non-euro denominated securities.
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    \9\ Self-Regulatory Organizations; LCH SA; Order Approving 
Proposed Rule Change Relating to Eligible Collateral and Liquidity 
Risk Management, Exchange Act Release No. 34-93176 (Sept. 29, 2021); 
86 FR 55061 (Oct. 5, 2021). File No. SR-LCH SA-2021-002.
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    The fee charged to clients of LCH SA CDSClear service is unchanged 
compared to existing securities as LCH SA wanted to preserve 
consistency in the pricing for clients of LCH SA CDSClear service.
    Additionally, today, CDSClear members and their clients mainly post 
cash collateral currently and LCH SA does not foresee that the proposed 
fee changes will alter current market practice amongst CDSClear's 
members and clients or will have any material impact on CDSClear's 
revenues. Indeed, the initiative is simply widening the list of 
eligible collateral as well as setting the associated fee for the new 
securities. It does not make any change to the fees charged on the 
existing list of eligible collateral and as such won't impact at all 
any of the current clearing members. Any clearing member wishing to 
deposit newly added securities as collateral for LCH SA will be able to 
do so knowing in advance the associated fee. Any clearing member not 
wishing to use the new range of eligible collateral for whatever reason 
will remain perfectly free to do so as well.
    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 
given the costs, expenses and revenues generated to LCH SA in providing 
these expanded collateral management 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.\10\
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    \10\ 15 U.S.C. 78q-1(b)(3)(I).
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    LCH SA does not believe that the proposed rule change would impose 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.
    LCH SA is offering the possibility for CDSClear members and clients 
to post a greater scope of instruments as eligible margin collateral. 
Additionally, the proposed fee change will apply equally to all 
CDSClear clearing members and is not expected to have any potential 
disparate outcomes on any of them. Finally, the fee rate changes will 
not adversely affect the ability of such members or other market 
participants generally to engage in cleared transactions or to access 
LCH SA's clearing services.
    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.

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) \11\ of the Act and Rule 19b-4(f)(2) 
\12\ 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.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(2).
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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-2021-003 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-2021-003. 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/rulebooks/proposed-rule-changes. All 
comments received will be posted without change. Persons submitting 
comments are cautioned that we do not redact or edit personal 
identifying information from comment submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-LCH SA-2021-003 and should 
be submitted on or before December 1, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-24528 Filed 11-9-21; 8:45 am]
BILLING CODE 8011-01-P


