Federal Register / Vol. 85, No. 233 / Thursday, December 3, 2020 / Notices 78153 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3Self-Regulatory Organizations; LCH SA; Notice 

of Filing of Proposed Rule Change Relating to the 

Clearing of Options on Index Credit Default Swaps 

in Respect of North American Indices (More 

Specifically, CDX.NA.IG and CDX.NA.HY), 

Exchange Act Release No. 90099 (October 6, 2020); 

85 FR 64551 (October 13, 2020) (SR–LCH SA–2020– 

005) (‘‘Notice’’). 

4Partial Amendment No. 1 amends the LCH SA 

Reference Guide: CDS Margin Framework to reflect 

all of the changes discussed herein. Partial 

Amendment No. 1 also includes Exhibit 4 (Text of 

the proposed change with the differences from the 

initial Exhibit 5C). 

5The description herein is substantially 

excerpted from the Notice. 

6See Notice, 85 FR at 64552. 

7Capitalized terms used but not defined herein 

have the same definitions as in the CDSClear 

Margin Framework or Default Fund Methodology, 

as applicable. 

8See Notice, 85 FR at 64552. 

9 Id. 

10See Notice, 85 FR at 64552. 

11 Id. (noting that in the event of a clearing 

member default, market feedback indicates that it 

is optimal from a friction cost standpoint for 

swaptions to be liquidated as a delta-hedged 

package intended to trade and hedge an option 

along with an index). 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–90525; File No. SR–LCH 

SA–2020–005] 

Self-Regulatory Organizations; LCH 

SA; Notice of Filing of Partial 

Amendment No. 1 and Order Granting 

Accelerated Approval of Proposed 

Rule Change, as Modified by Partial 

Amendment No. 1, Relating to the 

Clearing of Options on Index Credit 

Default Swaps in Respect of North 

American Indices (More Specifically, 

CDX.NA.IG and CDX.NA.HY) 

November 27, 2020. 

I. Introduction 

On September 24, 2020, Banque 

Centrale de Compensation, which 

conducts business under the name LCH 

SA (‘‘LCH SA’’), filed with the 

Securities and Exchange Commission 

(‘‘Commission’’), pursuant to Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (‘‘Act’’) 1 and Rule 19b–4,2 a 

proposed rule change to permit the 

clearing of options on index credit 

default swaps (‘‘CDS’’) in respect of 

North American indices (more 

specifically, CDX.NA.IG and 

CDX.NA.HY) (‘‘CDX Swaptions’’). The 

proposed rule change was published for 

comment in the Federal Register on 

October 13, 2020.3 The Commission did 

not receive comments on the proposed 

rule change. On November 27, 2020, 

LCH SA filed Partial Amendment No. 1 

to the proposed rule change.4 The 

Commission is publishing this notice to 

solicit comments on Partial Amendment 

No. 1 from interested persons and is 

approving the proposed rule change, as 

modified by Partial Amendment No. 1 

(hereinafter, ‘‘proposed rule change’’), 

on an accelerated basis. 

II. Description of the Proposed Rule 

Change 

LCH SA is proposing to amend its 

rules to permit the clearing of CDX 

Swaptions.5 As LCH SA currently clears 

options in which certain European 

index CDS are the underlying asset, i.e., 

CDS on Markit iTraxx® Europe Index 

and iTraxx® Crossover Index (‘‘iTraxx 

Swaptions’’), the proposed introduction 

of CDX Swaptions requires minimal 

changes to extend LCH SA’s existing 

risk framework to this new product.6 As 

described below, LCH SA is proposing 

such changes in its (i) Reference Guide: 

CDS Margin Framework (‘‘CDSClear 

Margin Framework’’); 7 (ii) CDS Clearing 

Supplement (‘‘Supplement’’); and (iii) 

CDS Clearing Procedures 

(‘‘Procedures’’).8 In addition, LCH SA 

proposes to make other changes 

unrelated to the introduction of CDX 

Swaptions, including changes to the 

Vega Margin that will apply to both 

iTraxx Swaptions and CDX Swaptions, 

which are also described below.9

A. Proposed Changes With Respect to 

CDX Swaptions 

1. CDSClear Margin Framework 

LCH SA is proposing to amend 

Paragraph 2.3.4, which concerns the 

Daily Contributions Assessment, to 

include CDX Swaptions. The Daily 

Contributions Assessment is the 

primary method by which LCH SA 

obtains Members’ daily price 

contributions to update implied 

volatilities on options. These price 

contributions, in turn, would be used by 

LCH SA for marking the options book, 

if certain conditions are met. The 

proposed change to the Daily 

Contributions Assessment will require 

Members to make price contributions on 

CDX Swaptions for all strikes that are 

multiples of 2.5 basis points for 

CDX.NA.IG and 0.5 cents for 

CDX.NA.HY of a given expiry when 

Members have at least one open 

position on one strike for that expiry. 

This change would ensure that daily 

updates are available for LCH SA’s 

implied volatility measurements. 

Without this change, LCH SA would 

rely on Markit’s composite prices or use 

pre-defined rules to fill in missing data 

in accordance with section 2.3.3.2 

(Missing Data Points) of the CDSClear 

Margin Framework, consistent with 

what LCH does for other options that it 

currently clears. 

LCH SA is also proposing changes in 

paragraph 4.1.9 of the CDSClear Margin 

Framework, as outlined below: 

(a) LCH SA would add a comment to 

highlight that although the given 

example pertains to iTraxx Swaptions, 

the same logic applies to CDX 

Swaptions. 

(b) In the description of Step 2 

regarding the calculation of the cost of 

vega hedging, LCH SA would specify 

that the volume of delta neutral 

Swaption notional that it can unwind in 

a day will be derived from a clearing 

member survey. 

(c) In the description of Step 3 

regarding the contributions to the 

macro-hedge cost, LCH SA would 

specify that the volume of principal 

index 5YR Off-The-Run-1 series 

Swaption notional that one can 

reasonably unwind in a day is defined 

in the previous section on indices. LCH 

SA would also add CDX Swaptions to 

the description of the variable beta (‘‘b’’) 

that defines an index sub-family, either 

Main or Xover for iTraxx and IG or HY 

for CDX. 

(d) In the description of Step 4 

regarding the final Liquidity Charge and 

to aggregate the costs of delta hedging 

and vega hedging, LCH SA would add 

a formula to clarify that the existing 

methodology would also apply and to 

incorporate the Foreign Exchange rate 

into the final Liquidity Charge formula 

to address CDX Swaptions. LCH SA 

determined that no changes are required 

to its liquidity and concentration risk 

margin methodology, as set forth in the 

CDSClear Margin Framework, in 

connection with clearing CDX 

Swaptions.10

Currently, in the event of a clearing 

member default and the calculation of a 

liquidity charge, LCH SA attempts to 

source hedges from the CDS part of the 

defaulting member’s portfolio using a 

delta-hedging algorithm to ensure 

minimal hedging costs before sourcing 

the hedges from the market.11 In this 

connection, LCH SA proposes to amend 

Section 4.1.9 to reflect use of a member 

survey to determine the volume of the 

delta neutral package of the selected 

option that can be reasonably unwound 

per day. LCH SA is also proposing 

additional language to confirm how 

currency conversion from USD to EUR 

will apply in circumstances where 

options priced in USD form part of the 

delta-hedged package. 

Paragraph 4.2 sets forth the accrued 

coupon liquidation risk margin (i.e., 

margin covering the risk that a 


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12See Notice, 85 FR at 64552. 

13 Id. 

protection buyer will not be paying any 

accrued coupon via the Variation 

Margin (‘‘VM’’) between the time it 

defaults and the end of the liquidation 

of its portfolio) for both CDS and CDS 

Options. The accrued coupon 

liquidation risk margin with respect to 

CDS Options remains the same, but 

would be amended to reflect that any 

such amount for CDX Swaptions 

contracts is converted from USD to EUR. 

As a result of the foregoing proposed 

changes, LCH SA would update the 

Content table and the summary of 

changes and make corresponding 

changes to provision numbering 

throughout the CDSClear Margin 

Framework. 

2. Supplement 

To allow for the clearing of CDX 

Swaptions, LCH SA is proposing a 

number of changes in Part C of the 

Supplement to add or modify a number 

of relevant definitions. Specifically, in 

Section 1.2 (Terms defined in the CDS 

Clearing Supplement): 

(a) The proposed definition of the 

term ‘‘CDX Swaption Standard Terms 

Supplement’’ would refer to the 

applicable documentation for the CDX 

Swaptions, as published by Markit 

North America, Inc. and as amended by 

the Supplement. 

(b) The definition of the term ‘‘Index 

Swaption Cleared Transaction 

Confirmation’’ would refer to the 

applicable form of confirmation for CDX 

Swaptions in new indent (b), and would 

make some minor corrections in new 

indent (a) and in the last paragraph of 

the definition. 

(c) The proposed definition of the 

term ‘‘Submission Deadline’’ would 

provide for both the Markit iTraxx and 

CDX exercise windows in respect of 

different swaptions. 

(d) The definition of ‘‘Transaction 

Data’’ would include a new reference to 

the Option Type that is relevant for CDX 

Swaptions. 

In addition, LCH SA proposes to 

replace all references to the standard 

fixed time of 4:00 p.m. (London time) or 

5:00 p.m. (Central European Time), 

which apply only to iTraxx Swaptions, 

with the new defined term ‘‘Submission 

Deadline’’ in Sections 6.3, 6.4, 6.5 

(paragraph (c)), 6.10 (paragraph (b)) and 

Sections 5.3, 5.5 and 5.7 of Appendix 

VIII (CCM Client Transaction 

Requirements). 

For consistency purposes, LCH SA 

would amend Section 7.2 (Creation of 

Initial Single Name Cleared 

Transactions for Settlement purposes in 

respect of Credit Events other than 

M(M)R Restructuring) to include 

references to the relevant paragraph of 

the CDX Swaption Standard Terms 

Supplement. 

LCH SA would also add references to 

a CDX as an Underlying Index and the 

Swaption Type to the Schedules of 

Appendix I (Form of Exercise Notice) 

and Appendix II (Form of Abandonment 

Notice) to Part C of the Supplement. 

In Appendix VIII (CCM Client 

Transaction Requirements) to Part C of 

the Supplement, LCH SA proposes to 

amend Section 1 to refer to the CDX 

Swaption Standard Terms Supplement 

and to remove the definition of ‘‘STS 

Supplement.’’ LCH SA would make a 

related change in Section 8.2 of this 

Appendix by replacing the current 

reference to the ‘‘STS Supplement’’ with 

a reference to the ‘‘iTraxx® Swaption 

Standard Terms Supplement’’ as this 

section concerns only iTraxx Swaptions. 

LCH SA would also add references to 

the iTraxx® Swaption Standard Terms 

Supplement and the CDX Swaption 

Standard Terms Supplement or the 

relevant section of such Supplement, as 

applicable, and remove any reference to 

the STS Supplement in Sections 8.3 and 

8.4 of this Appendix. 

3. Procedures 

LCH SA also proposes to modify 

Section 5 of the Procedures (CDS 

Clearing Operations) to include CDX 

Swaptions in the scope of the End of 

Day Price Contribution as set out in 

Paragraph 5.18. 

LCH SA would change references 

from ‘‘CDS’’ to ‘‘CDS and an Index 

Swaption’’ in paragraphs 5.18.3 and 

5.18.5, for instruments with a CDS 

Contractual Currency in U.S. Dollar. In 

paragraph 5.18.4 (Use of composite 

spreads/prices), LCH SA would modify 

the first sentence to ensure similar 

clarity. In the same paragraph, LCH SA 

would expand the scope of the End of 

Day Contributed Prices in respect of 

CDS with a Contractual Currency in 

U.S. Dollar to include Index Swaptions. 

In paragraph 5.18.5(b), LCH SA would 

remove the restriction to Index 

Swaptions with a CDS Contractual 

Currency in Euro, and separate the Delta 

Hedged Swaption Package into two subsections in order to allow for the two 

different timings of iTraxx Swaptions 

and CDX Swaptions. 

B. Other Changes Unrelated to CDX 

Swaptions 

LCH SA is also proposing changes in 

the CDSClear Margin Framework and 

the Supplement that LCH SA 

represented are unrelated to the CDX 

Swaptions initiative. 

In section 3.9 of the CDSClear Margin 

Framework, LCH SA proposes changes 

to align the methodology for calculating 

Vega Margin with LCH SA’s approach 

across all products and business 

segments. Vega Margin captures the risk 

of volatility changes in the options 

premium relative to the strikes, i.e., the 

skew risk and the risk of changes in the 

volatility of volatility.12 To address a 

risk model validation finding, LCH SA 

is proposing to change its risk model 

from a parametric model to a historical 

model, using predefined scenarios to 

simulate the risk of volatility change. 

This change in risk model would 

introduce shocks on the volatility itself 

rather than solely on the calculation’s 

model parameters, as the current 

parametric model does. The proposed 

historical model would use a new 

methodology that relies on four regular 

and four stressed historical scenarios for 

each index family, calibrated based on 

the worst skew risk and the volatilityof-volatility risk at given confidence 

levels, as outlined below. Under both 

models, Vega Margin represents an addon amount to Spread Margin (i.e., a 

component of Total Initial Margin that 

covers the worst losses in the event of 

unfavorable credit spread and volatility 

moves) that accounts for potential 

moves in implied volatility. LCH SA 

does not expect that the proposed 

change from a parametric to a historical 

model will have a significant Profit and 

Loss (‘‘P&L’’) impact on the calculation 

of Vega Margin.13

(a) LCH SA will develop the volatility 

scenarios using historical data since 

April 3, 2007. For each index family, 

LCH SA would identify historical 

scenarios by estimating the largest 5-day 

shifts in volatility distance, at a given 

percentile, between At-The-Money 

strikes and implied volatilities for 

options with a delta of 10%, 25%, 75% 

and 90%, to capture the deformation of 

volatility surface across strikes. 

(b) LCH SA would calibrate the skew 

and smile scenarios related to the option 

pricing against the worst volatility 

surface distortion (i.e., the largest 

changes of the volatility distance as 

explained above) at a given confidence 

level. LCH SA would derive these 

scenarios from volatility shocks at each 

delta level described above, which LCH 

SA will use to shift the end of day 

volatilities, at the corresponding delta 

levels, to calibrate a set of shifted or 

Stochastic Volatility Inspired (‘‘SVI’’) 

scenarios as shown in the updated table 

in paragraph 3.9.2. 

(c) LCH SA proposes to adjust the 

number of scenarios calculated for each 

index family from eight to four, because 


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14See Notice, 85 FR at 64553. 

15See Notice, 85 FR at 64553. 

16See Notice, 85 FR at 64554. 

17 Id. 

18 15 U.S.C. 78s(b)(2)(C). 

19 15 U.S.C. 78q–1(b)(3)(F). 

20 17 CFR 240.17Ad–22(e)(6)(i). 

of the shocks that the new historical risk 

model will apply at volatility level. 

In addition, LCH SA is proposing the 

following miscellaneous changes in the 

CDSClear Margin Framework: 

(a) Section 3 provides the Total Initial 

Margin framework with respect to both 

CDS and CDS Options. One component 

of the Total Initial Margin framework is 

the Short Charge, an amount which 

accounts for the risk of default by the 

underlying constituent entities of the 

relevant index.14 While the 

methodology for calculating Short 

Charge margin in section 3.1 would 

remain the same, LCH SA would amend 

the summary language to specify that it 

includes the P&L impact of liquidating 

a defaulting member’s portfolio under 

one or two credit events. Currently, the 

number of credit events that LCH SA 

considers is set to two. The Risk 

Overview table in paragraph 3.2 also 

would reflect this change. As per the 

model used for linear U.S. products, the 

Short Charge amount would also cover 

the possibility of a default in respect of 

an exposure representing the average 

net short exposure of the ten (10) 

riskiest exposures with the defined 

recovery rate cap. Since the approach in 

respect of iTraxx Swaptions only 

accounts for the risk of default of the 

entity with the largest net short 

exposure, LCH SA is amending the 

language to include the additional 

default risk that it must take into 

account in respect of CDX Swaptions on 

CDX.NA.HY. As a result of these 

changes, LCH SA would also remove the 

specific rule to calculate the Financial 

Short Charge on Financial entities 

(which covered the default risk by the 

two largest Financials entities 

comprising the underlying constituent 

entities of the relevant index). 

(b) LCH SA would remove a reference 

to a 10-year sample for the Foreign 

Exchange rate from paragraph 3.4.8.3, 

because it was not an accurate 

description of how LCH SA computes 

the Foreign Exchange rate. 

(c) LCH SA also proposes to correct a 

typographical error in paragraph 3.8.2 

(double parenthesis and period 

missing). 

LCH SA also proposes several 

miscellaneous changes in the 

Supplement for purposes of clarification 

or harmonization, as described below. 

Specifically, in Part C of the 

Supplement, Section 9.1 (Creation of 

Matched Pairs), LCH SA would add a 

principle governing the size of the 

Matched Pairs that it would create in 

the context of a Restructuring or an 

Exercise to align with equivalent 

provisions of Parts A and B of the 

Supplement. LCH SA also proposes to 

remove the amounts of the Matched Pair 

from Section 8.1 (Creation of Matched 

Pairs) of Parts A and Part B of the 

Supplement, because LCH SA proposes 

that such amounts would be set forth in 

a new Clearing Notice that outlines the 

maximum applicable Matched Pair 

notional amounts. LCH SA represents 

that this proposed change would allow 

for greater flexibility in adapting these 

amounts according to market conditions 

and evolving open interest.15

In addition, LCH SA proposes to 

remove the conditional references to 

‘‘if’’ from Section 2.4 and Appendix XIII 

(Section 2.6) of Part B of the 

Supplement and from Section 2.3 and 

Appendix VIII (Section 2.4) of Part C of 

the Supplement, given that the Protocol 

Effectiveness Condition as defined in 

the ISDA 2019 Narrowly Tailored Credit 

Event (‘‘NTCE’’) Protocol published by 

the International Swaps and Derivatives 

Association, Inc. (‘‘ISDA’’) on August 

27, 2019 is now satisfied. For 

consistency purposes, LCH SA would 

make an equivalent amendment to 

Appendix XIII of Part A of the 

Supplement (Section 2.6) in respect of 

the 2014 ISDA Credit Derivatives 

Definitions Protocol published by ISDA 

on August 21, 2014. 

LCH SA would also remove references 

to the Implementation Date as provided 

for in the 2019 ISDA NTCE Protocol 

from the definition of the ‘‘iTraxx®

Swaption Standard Terms Supplement’’ 

in Section 1.2 of Part C of the 

Supplement to refer to the current 

version of this document which was 

published on March 20, 2017. LCH SA 

stated that at the time that ISDA had 

drafted the 2019 ISDA NTCE Protocolrelated amendments and submitted 

them to the regulatory process, there 

was an initial draft Swaption Standard 

Terms Supplement that took account of 

this Protocol.16 LCH SA also stated that 

this draft did not progress, and that the 

most recent, applicable version remains 

the version published in 2017.17

Consequently, in Section 2.2 (Index 

Swaption Cleared Transaction 

Confirmation) of Part C of the 

Supplement, LCH SA would amend any 

confirmation in respect of a Swaption 

by specifying in a new indent (d) that 

the Standard Terms Date applicable to 

the underlying transaction of a 

Swaption will be the most updated 

version of the Standard Terms 

Supplement. This change will ensure 

that the applicable version is the one 

that has taken into account the 2019 

ISDA NTCE Protocol (i.e., the versions 

applicable to Markit iTraxx and CDX 

published on the Implementation Date 

of such Protocol). As a result of this 

change, LCH SA would renumber the 

indents in Section 2.2 from (e) to (i). 

LCH SA also proposes to make the 

following corrections to the 

Supplement: 

(a) In Sections 7.10 of Parts A and B, 

LCH SA would replace the reference to 

a ‘‘CDS Clearing Member’’ with 

‘‘Clearing Member’’ to use the correct 

defined term. 

(b) In Sections 9.1 of Parts A and B, 

paragraph (c), LCH SA would specify 

that the Self Referencing Transaction is 

a Clearing Member Self Referencing 

Transaction to be consistent with the 

title of Section 9.1. 

(c) In Section 1.2 of Part B, in the 

definition of ‘‘Index Cleared Transaction 

Confirmation,’’ LCH SA would insert 

the correct name of the publisher of the 

documentation for Markit CDX. 

(d) In Section 1.2 of Part C, LCH SA 

would correct a typographical error in 

the definition of ‘‘Swaption 

Restructuring Cleared Transaction’’ and 

remove the word ‘‘Eligible’’ from the 

definition of ‘‘Underlying Index 

Transaction’’ as an Eligible Index 

Swaption is not a defined term. 

(e) In Appendix VIII of Part C, LCH 

SA would remove the definitions from 

Section 1 as these terms are already 

defined in Section 1.2 of Part C. 

III. Commission Findings 

Section 19(b)(2)(C) of the Act directs 

the Commission to approve a proposed 

rule change of a self-regulatory 

organization if it finds that the proposed 

rule change is consistent with the 

requirements of the Act and the rules 

and regulations thereunder applicable to 

the organization.18 For the reasons given 

below, the Commission finds that the 

proposed rule change is consistent with 

Section 17A(b)(3)(F) of the Act 19 and 

Rule 17Ad–22(e)(6)(i) thereunder.20

A. Consistency With Section 

17A(b)(3)(F) of the Act 

Section 17A(b)(3)(F) of the Act 

requires, among other things, that the 

rules of LCH SA be designed to promote 

the prompt and accurate clearance and 

settlement of securities transactions 

and, to the extent applicable, derivative 

agreements, contracts, and transactions 

and to assure the safeguarding of 

securities and funds which are in the 


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21 15 U.S.C. 78q–1(b)(3)(F). 

22 15 U.S.C. 78q–1(b)(3)(F). 

23 17 CFR 240.17Ad–22(e)(6)(i). 24 17 CFR 240.17Ad–22(e)(6)(i). 

custody or control of LCH SA or for 

which it is responsible.21

As described above in Section II.A, 

LCH SA is proposing to revise its 

CDSClear Margin Framework, 

Supplement, and Procedures in order to 

extend their applicability to CDX 

Swaptions. For example, the proposed 

change to the Daily Contributions 

Assessment in the CDSClear Margin 

Framework would require Members to 

make price contributions on CDX 

Swaptions for all strikes that are 

multiples of 2.5 basis points for 

CDX.NA.IG and 0.5 cents for 

CDX.NA.HY of a given expiry when 

Members have at least one open 

position on one strike for that expiry. 

The revisions to the Supplement would 

allow the clearing of CDX Swaptions by 

amending various definitions to make 

them applicable to CDS Swaptions. The 

Procedures similarly would be revised 

to include CDX Swaptions in, for 

example, the scope of the End of Day 

Price Contribution. The language in the 

Short Charge component of the total 

initial margin has also been amended to 

include the additional default risk that 

must be taken into account with CDX 

Swaptions. The Commission 

understands that, taken together, these 

changes would amend LCH SA’s risk 

management system and clearing 

procedures to ensure that LCH SA can 

appropriately manage the risks of 

transactions in CDX Swaptions and, in 

turn, to help ensure that LCH SA has 

sufficient financial resources. The 

Commission therefore believes that 

these changes would promote the 

prompt and accurate clearance and 

settlement of CDX Swaptions. Similarly, 

given that mismanagement of the risks 

associated with clearing CDX Swaptions 

could cause LCH SA to realize losses on 

such transactions and threaten its ability 

to operate, thereby threatening access to 

securities and funds in LCH SA’s 

control, the Commission believes that 

the proposed rule change would help 

assure the safeguarding of securities and 

funds which are in the custody or 

control of LCH SA or for which it is 

responsible. 

LCH SA is also proposing 

miscellaneous changes that are 

unrelated to CDX Swaptions. For 

instance, LCH SA is proposing 

corrections to various terminology in 

the Supplement (replacing reference in 

Section 7.10 of Parts A and B to a ‘‘CDS 

Clearing Member’’ with the correct 

defined term ‘‘Clearing Member,’’ 

specifying in Section 9.1 of Parts A and 

B that the Self Referencing Transaction 

is a Clearing Member Self Referencing 

Transaction, removing the term 

‘‘Eligible’’ from the definition of 

‘‘Underlying Index Transaction’’ in 

Section 1.2 of Part C as a typographical 

error), as well as wording changes to 

reflect the fact that the Protocol 

Effectiveness Condition with regard to 

the 2019 ISDA NTCE Protocol published 

by ISDA on August 27, 2019 is now 

satisfied along with the various clean-up 

and typographical changes. The 

Commission believes that these 

clarifications strengthen LCH SA’s risk 

management documents with clear and 

up-to-date information, which in turn is 

consistent with protecting investors and 

the public interest. 

LCH SA is also proposing changes to 

the Vega Margin methodology. 

Specifically, LCH SA is proposing to 

transition from a parametric model to a 

historical model, using predefined 

scenarios to simulate the risk of 

volatility change. The Commission 

believes that this proposed change will 

enable LCH SA to more accurately 

capture changes in option value due to 

volatility and generate margins 

commensurate with the risks and 

attributes of CDS and CDS options, 

which in turn will enhance LCH SA’s 

ability to manage the risks of 

transactions in CDX Swaptions and 

ultimately to promptly and accurately 

settle securities transactions and 

safeguard funds and securities. 

For the reasons stated above, the 

Commission finds that the proposed 

rule change is consistent with Section 

17A(b)(3)(F) of the Act.22

B. Consistency With Rule 17Ad– 

22(e)(6)(i) 

Rule 17Ad–22(e)(6)(i) requires that 

LCH SA establish, implement, maintain, 

and enforce written policies and 

procedures reasonably designed, as 

applicable, to cover its credit exposures 

to its participants by establishing a riskbased margin system that, at a minimum 

considers, and produces margin levels 

commensurate with, the risks and 

particular attributes of each relevant 

product, portfolio, and market.23

As noted above, the proposal would 

amend the CDSClear Margin Framework 

with respect to the Short Charge 

component of the total initial margin to 

include the additional default risk that 

must be taken into account with options 

on CDX.NA.HY. Such a change is 

necessary because the current approach 

with iTraxx Swaptions only accounts 

for the risk of default of the entity with 

the largest net short exposure, and the 

CDX Swaptions approach covers the 

possibility of a default in respect of an 

exposure representing the average net 

short exposure of the ten riskiest 

exposures with the defined recovery 

rate cap, which is an additional default 

risk posed by CDX Swaptions. The 

Commission therefore believes that this 

proposed change would enhance LCH 

SA’s risk-based margin system by 

considering and producing margin 

levels commensurate with the risks and 

particular attributes of CDX Swaptions. 

The Commission also believes that the 

proposed rule changes to add the new 

methodology for calculating Vega 

Margin, based on a historical model 

approach rather than a parametric 

model, to account for the skew risk and 

volatility-of-volatility risk specific to 

CDS Options would likewise strengthen 

LCH SA’s ability to produce margins 

commensurate with these products 

because this proposed approach would 

be based on known, rather than 

unobservable, parameters used in 

assessing the value of an option. 

For these reasons, the Commission 

finds that the proposed rule change is 

consistent with Rule 17Ad–22(e)(6)(i).24

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change, as modified by Partial 

Amendment No. 1, 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 rule-comments@

sec.gov. Please include File Number SR– 

LCH SA–2020–005 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–2020–005. 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 


khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 85, No. 233 / Thursday, December 3, 2020 / Notices 78157 

25 15 U.S.C. 78s(b)(2). 

26 15 U.S.C. 78s(b)(2). 

27 15 U.S.C. 78q–1(b)(3)(F). 

28 17 CFR 240.17Ad–22(e)(6)(i). 

29 15 U.S.C. 78s(b)(2). 

30 In approving the proposed rule change, the 

Commission considered the proposal’s impact on 

efficiency, competition, and capital formation. 15 

U.S.C. 78c(f). 

31 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 90091 

(Oct. 5, 2020), 85 FR 64194. 

4 15 U.S.C. 78s(b)(2)(D). 

5 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3 In Partial Amendment No. 1 to the proposed 

rule change, ICC provided additional details and 

analyses surrounding the proposed rule change in 

the form of a confidential Exhibit 3. Partial 

Amendment No. 1 did not make any changes to the 

substance of the filing or the text of the proposed 

rule change. 

4 15 U.S.C. 78s(b)(3)(A). 

5 17 CFR 240.19b–4(f)(2). 

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/rulesand-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–2020–005 and 

should be submitted on or before 

December 24, 2020. 

V. Accelerated Approval of the 

Proposed Rule Change, as Modified by 

Partial Amendment No. 1 

The Commission finds good cause, 

pursuant to Section 19(b)(2) of the 

Act,25 to approve the proposed rule 

change prior to the 30th day after the 

date of publication of Partial 

Amendment No. 1 in the Federal 

Register. As discussed above, Partial 

Amendment No. 1 amends the 

Reference Guide: CDS Margin 

Framework to reflect all of the changes 

discussed in this Order. By updating the 

Reference Guide: CDS Margin 

Framework to reflect all of the changes 

being made, Partial Amendment No. 1 

ensures that the exhibit 5C accurately 

reflects all intended rule changes and is 

designed, in general, to protect investors 

and the public interest, consistent with 

Section 17A(b)(3)(F) of the Act. 

Accordingly, the Commission finds 

good cause for approving the proposed 

rule change, as modified by Partial 

Amendment No. 1, on an accelerated 

basis, pursuant to Section 19(b)(2) of the 

Exchange Act.26

VI. Conclusion 

On the basis of the foregoing, the 

Commission finds that the proposed 

rule change is consistent with the 

requirements of the Act, and in 

particular, with the requirements of 

Section 17A(b)(3)(F) of the Act 27 and 

Rule 17Ad–22(e)(6)(i) thereunder.28

It is therefore ordered pursuant to 

Section 19(b)(2) of the Act 29 that the 

proposed rule change, as modified by 

Partial Amendment No. 1 (SR–LCH SA– 

2020–005), be, and hereby is, 

approved.30

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.31

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2020–26597 Filed 12–2–20; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–90526; File No. SR–NYSE– 

2020–77] 

Self-Regulatory Organizations; New 

York Stock Exchange LLC; Notice of 

Deemed Approval of a Proposed Rule 

Change To Adopt Rule 8.601 (Active 

Proxy Portfolio Shares) and Rule 8.900 

(Managed Portfolio Shares), Amend 

the Preamble to Rule 8P, and Amend 

Section 302.00 of the Listed Company 

Manual 

November 27, 2020. 

On September 22, 2020, New York 

Stock Exchange LLC filed with the 

Securities and Exchange Commission 

(‘‘Commission’’), pursuant to Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (‘‘Act’’) 1 and Rule 19b–4 

thereunder,2 a proposed rule change to 

adopt Rule 8.601 (Active Proxy Portfolio 

Shares) and Rule 8.900 (Managed 

Portfolio Shares), amend the preamble 

to Rule 8P, and amend Section 302.00 

of the Listed Company Manual to 

accommodate the listing of Active Proxy 

Portfolio Shares and Managed Portfolio 

Shares. 

The proposed rule change was 

published for comment in the Federal 

Register on October 9, 2020.3 The 

Commission received no comment 

letters on the proposed rule change. 

As of November 23, 2020, pursuant to 

Section 19(b)(2)(D) of the Act,4 the 

proposed rule change (SR–NYSE–2020– 

77) was deemed to have been approved 

by the Commission. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.5

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2020–26596 Filed 12–2–20; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–90524; File No. SR–ICC– 

2020–013] 

Self-Regulatory Organizations; ICE 

Clear Credit LLC; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change, as Modified by Partial 

Amendment No. 1, Relating to ICC’s 

Fee Schedule 

November 27, 2020. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 1 and 

Rule 19b–4,2 notice is hereby given that 

on November 16, 2020, ICE Clear Credit 

LLC (‘‘ICC’’) filed with the Securities 

and Exchange Commission the proposed 

rule change as described in Items I, II, 

and III below, which Items have been 

prepared primarily by ICC. On 

November 25, 2020, ICC filed Partial 

Amendment No. 1 to the proposed rule 

change.3 ICC filed the proposed rule 

change pursuant Section 19(b)(3)(A) of 

the Act 4 and Rule 19b–4(f)(2) 

thereunder,5 such that the proposed rule 

change was immediately effective upon 

filing with the Commission. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change, as modified by Partial 

Amendment No. 1 (hereinafter the 

‘‘proposed rule change’’), from 

interested persons. 

I. Clearing Agency’s Statement of the 

Terms of Substance of the Proposed 

Rule Change 

The principal purpose of the 

proposed rule change is to modify ICC’s 

fee schedule to introduce two credit 

default index swaption (‘‘Index 

Swaption’’) volume incentive programs. 


khammond on DSKJM1Z7X2PROD with NOTICES