[Federal Register Volume 84, Number 224 (Wednesday, November 20, 2019)]
[Notices]
[Pages 64125-64127]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-25105]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87536; File No. SR-LCH SA-2019-010]
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
November 14, 2019.
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 31, 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 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
Banque Centrale de Compensation, which conducts business under the
name LCH SA (``LCH SA''), is proposing to review and modify its current
fee grid applied for Non Cash Collateral (NCC) across all clearing
services including CDSClear.
The text of the proposed rule change has been annexed as Exhibit
5.\5\
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\5\ All capitalized terms not defined herein have the same
definition as the Rule Book, Supplement or Procedures, as
applicable.
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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 these statements.
[[Page 64126]]
A. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change.
1. Purpose
LCH SA is currently applying the below fee grid for CDSClear
members:
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FFT Pledge
Collateral type ---------------------------------------------------------------
House (bps) Client (bps) House (bps) Client (bps)
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Government Bonds................................ 10 10 10 10
Supranational Bonds............................. N/A N/A N/A N/A
Agency Bonds.................................... 10 10 10 10
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From November 1st, 2019, LCH SA is proposing to extend the scope of
instruments eligible to margin collateral to EUR denominated bonds
issued by a number of supranational and agency institutions. LCH SA is
also proposing to extend the possibility to use the pledge solution in
Euroclear Bank for the other LCH SA clearing services (namely RepoClear
and EquityClear the ``Non US Business'' \6\). In this context, LCH SA
is moving to apply more differentiation in its collateral fee grid and
thus CDSClear has decided to harmonize its existing non-cash collateral
fee grid for house collateral with that of the other LCH SA clearing
services.
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\6\ See the definition under Order Granting Application for
Registration as a Clearing Agency and Request for Exemptive Relief,
Order, Securities Exchange Act Release No. 34-79707; File No. 600-36
(Dec. 29, 2016), 82 FR 1398 (Jan. 5, 2017) (available at https://www.federalregister.gov/documents/2017/01/05/2016-31940/self-regulatory-organizations-lch-sa-order-granting-application-for-registration-as-a-clearing).
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The objective of the proposed fee change is to differentiate the
pricing by type of non-cash collateral accepted by LCH SA and deposit
facility. These changes will be applicable across all LCH SA clearing
services with the exception of CDSClear's client collateral fees that
will differ from house fees and remain at their current level for all
non-cash securities.
No amendments to the LCH SA CDS Clearing Rules are required to
effect these changes.
As specified in the fee grid attached under Exhibit 5, the proposed
house collateral fee change is for CDSClear to:
(i) Increase the fee rate from 10 bps to 11 bps for full title
transfer of Government issued bonds; \7\
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\7\ To become effective on April 1st, 2020
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(ii) introduce a fee rate of 13 bps for full title transfer of
Supranational issued bonds;
(iii) increase the fee rate from 10bps to 13bps for full title
transfer of Agency issued bonds;
(iv) increase the fee rate from 10bps to 15bps for all pledged
securities.
For CDSClear clients, a fee rate of 10 bps will be introduced for
full title transfer of Supranational bonds. No other changes will be
made to CDSClear's client collateral fees.
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.\8\
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\8\ 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 \9\ 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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\9\ 15 U.S.C. 78q-1.
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The extension of the non-cash eligible securities along with the
extension of the pledge facility is an improvement of service that
offers all LCH SA's members and clients more choice and therefore more
opportunities to better tailor their collateral management to their
needs but it also does bear consequences on LCH SA's balance sheet as a
whole and therefore on its liquidity ratio management.
Currently the pledge facility is only available to CDSClear members
and clients with a very limited use. However, as a result of the
broadening of the pledge facility to Non US-Business, the expected
overall impact on LCH SA's liquidity ratio now needs to be carefully
monitored and managed. Further, in order to offer this enhanced
collateral management service, LCH SA has also invested in the
development of a number of additional systems and controls leading to
the review and changes of the applicable fee grid.
Additionally, today, CDSClear members mainly post cash collateral
and we do not foresee that the fee changes will alter current market
practice amongst CDSClear's members and clients.
As an illustration, from January 2018 to September 2019, the
percentage of collateral posted in securities was less than 20% on
average for house activity, supporting the assessment that these fee
changes will not have any material impact on CDSClear's revenues.
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 improved 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 are 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. 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.
[[Page 64127]]
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. 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 rule change has become effective pursuant to Section
19(b)(3)(A) of the Act and paragraph (f) of Rule 19b-4 thereunder. At
any time within 60 days of the filing of the proposed rule change, the
Commission summarily may temporarily suspend such 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.
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:
Electronic Comments
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-2019-010 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-2019-010. 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 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 the filing also will 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-2019-010 and should
be submitted on or before December 11, 2019.
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\11\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-25105 Filed 11-19-19; 8:45 am]
BILLING CODE 8011-01-P