28886 Federal Register / Vol. 83, No. 120 / Thursday, June 21, 2018 / Notices 

13 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Securities Exchange Act Release No. 34–82316 

(Dec. 13, 2017), 82 FR 60246 (Dec. 19, 2017) (SR– 

LCH–SA–2017–012) (‘‘Notice 012’’). 

4Capitalized terms used in this order but not 

defined herein have the same meanings specified in 

LCH SA’s rules. 

5Securities Exchange Act Release No. 34–82317 

(Dec. 13, 2017), 82 FR 60238 (Dec. 19, 2017) (SR– 

LCH SA–2017–013) (‘‘Notice 013’’). 

6 15 U.S.C. 78s(b)(2). 

7Securities Exchange Act Release No. 34–82570 

(Jan. 23, 2018), 83 FR 4088 (Jan. 29, 2018) (SR– 

LCH–SA–2017–012) and Securities Exchange Act 

Release No. 34–82571 (Jan. 23, 2018), 83 FR 4081 

(Jan. 29, 2018) (SR–LCH SA–2017–013). 

8 15 U.S.C. 78s(b)(2)(B). 

9Securities Exchange Act Release No. 34–82901 

(March 19, 2018), 83 FR 12833 (March 23, 2018) 

(SR–LCH SA–2017–012; SR–LCH SA–2017–013). 

10The descriptions of the proposed rule changes 

are substantially excerpted from Notice 012 and 

Notice 013. 

11The term ‘‘covered clearing agency’’ is defined 

in SEC Rule 17Ad–22(a)(5), 17 CFR 240.17Ad– 

22(a)(5). 

12 17 CFR 240.17Ad–22(e)(3)(ii). 

13Standards for Covered Clearing Agencies, 

Securities Exchange Act Release No. 34–78961 

(Sep. 28, 2016), 81 FR 70786, 70809 (Oct. 13, 2016). 

14See Notice 012, 82 FR at 60247. 

15 Id. 

16 Id. at 60249. 

17 Id. at 60249–60250. 

18 Id. at 60249. 

19 Id. 

20 Id. 

21 Id. 

should be submitted on or before July 

12, 2018. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.13

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–13299 Filed 6–20–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–83451; File Nos. SR–LCH 

SA–2017–012 and SR–LCH SA–2017–013] 

Self-Regulatory Organizations; LCH 

SA; Order Approving Proposed Rule 

Changes Related to LCH SA’s 

Recovery and Wind Down Plans 

June 15, 2018. 

I. Introduction 

On November 30, 2017, 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 

thereunder,2 a proposed rule change 

(LCH SA–2017–012) to adopt a recovery 

plan (the ‘‘RP’’). The proposed rule 

change was published for comment in 

the Federal Register on December 19, 

2017.3 On December 7, 2017, LCH SA 

filed with the Commission a proposed 

rule change (LCH SA–2017–013) to 

adopt a wind down plan (‘‘WDP’’).4 The 

proposed rule change was published for 

comment in the Federal Register on 

December 19, 2017.5 On January 23, 

2018, pursuant to Section 19(b)(2) of the 

Act,6 the Commission designated a 

longer period for Commission action on 

both proposed rule changes.7 On March 

19, 2018 the Commission instituted 

proceedings under Section 19(b)(2)(B) of 

the Act 8 to determine whether to 

approve or disapprove the proposed 

rule changes.9 To date, the Commission 

has not received any comments on the 

proposed rule changes. For the reasons 

discussed below, the Commission is 

approving the proposed rule changes. 

II. Description of the Proposed Rule 

Changes 10

As a ‘‘covered clearing agency,’’ 11

LCH SA is required to, among other 

things, ‘‘establish, implement, maintain 

and enforce written policies and 

procedures reasonably designed to . . . 

maintain a sound risk management 

framework for comprehensively 

managing legal, credit, liquidity, 

operational, general business, 

investment, custody, and other risks 

that arise in or are borne by the covered 

clearing agency, which . . . includes 

plans for the recovery and orderly winddown of the covered clearing agency 

necessitated by credit losses, liquidity 

shortfalls, losses from general business 

risk, or any other losses.’’ 12 The 

Commission has previously clarified 

that it believes that such recovery and 

wind-down plans are ‘‘rules’’ within the 

meaning of Exchange Act Section 19(b) 

and Rule 19b–4 because such plans 

would constitute changes to a stated 

policy, practice or interpretation of a 

covered clearing agency.13 Accordingly, 

a covered clearing agency, such as LCH 

SA, must file its RP and WDP with the 

Commission. 

A. The RP (LCH SA–2017–012) 

LCH SA’s RP seeks to maintain the 

continuity of critical services in times of 

extreme stress and to facilitate the 

recovery of LCH SA from such stress. In 

particular, the RP describes (i) the 

scenarios and triggers for initiating 

recovery measures; (ii) various recovery 

tools used in such recovery; and (iii) the 

governance framework for managing the 

RP. Each of those aspects of the RP are 

discussed in more detail below. 

The scenarios that could necessitate 

the implementation of the RP include 

the default of one or more clearing 

members, liquidity shortfalls as a result 

of the default of an investment 

counterparty of LCH SA or any other 

investment losses resulting from 

changes in the market value on the 

investments, a loss resulting from an 

event which impacts the critical 

services provided by LCH SA (e.g., 

failure in the provision of service by a 

third party), loss of critical contracts 

with exchanges, or the operational or 

financial failure of a financial market 

infrastructure such as an allied clearing 

house or trade repository.14

The default management process is 

used to re-establish a matched book and 

return to business as usual and therefore 

LCH SA considers it to be a recovery 

tool.15 When pre-funded resources, such 

as defaulter’s margin, defaulter’s default 

fund contributions, LCH SA’s capital, 

and non-defaulters’ default fund 

contributions, are no longer available to 

meet obligations due to member and 

non-member losses, the RP lists various 

measures and tools that LCH SA can use 

to return to business as usual.16 The RP 

is organized to discuss each tool 

according to the nature of the loss the 

tool is designed to address (e.g., clearing 

member default losses, liquidity 

shortfalls, operational, business, and 

investment risks). The RP also discusses 

the sequence in which these tools 

would be used and the relative strength 

of each.17

When pre-funded resources have been 

exhausted after a clearing member 

default, LCH SA can call a default fund 

assessment up to a cap, request 

voluntary payments from all nondefaulting members, and effectuate 

service closure.18 In the event such tools 

are unavailable, certain other businessas-usual tools, such as default fund 

additional margin, may enable LCH SA 

to collect additional resources. 

In the event of a liquidity shortfall, 

LCH SA may use its central bank credit 

line to deposit securities received on 

behalf of defaulting clearing members 

and obtain liquidity.19 Other potential 

tools to manage a liquidity stress 

situation include limits with respect to 

illiquid collateral, the application of 

increased haircuts on certain types of 

collateral to incentivize the use of more 

liquid collateral, and specific liquidity 

margins.20 LCH SA also could defer 

funding for the settlement platform for 

a limited period of time, but views this 

as a tool of last resort.21

For most investment, business, and 

operational losses, LCH SA can allocate 


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22 Id. 

23See Notice 012, 82 FR at 60249. 

24 Id. at 60250. 

25 Id. 

26 Id. 

27 Id. 

28 Id. 

29 Id. 

30 Id. 

31 Id. 

32 Id. 

33 Id. 

34 Id. 

35 Id. 

36Notice 013, 82 FR at 60239. 

37 Id. 

38 Id. at 60239–60240. 

39 Id. at 60239. 

40 Id. 

41 Id. 

42 Id. 

43 Id. 

44 Id. 

45 Id. 

46 Id. at 60239–60240. 

47 Id. at 60240 

48 Id. at 60240. 

49 Id. 

50 Id. 

51 Id. 

52 Id. 

its capital surplus against losses.22

Further down the list of preferable 

recovery tools for non-clearing member 

defaults are the abilities to raise capital 

or utilize insurance meant to cover a 

specific operational risk event.23 For 

any disruption or loss of a key thirdparty service provider, LCH SA would 

be able to exercise several contractual 

rights and maintains exit plans that are 

intended to safeguard the continuity of 

services.24

The RP discusses the governance 

surrounding its creation, invocation, 

and operation.25 LCH SA relies upon its 

existing governance forums for both the 

creation and on-going monitoring and 

operation of the RP. Specifically, the 

LCH SA Management Committee is 

responsible for the preparation of the RP 

and the monitoring and implementation 

of the recovery tools set forth in the 

RP.26 The LCH SA Risk Committee 

reviews and makes a recommendation 

to the Board, which ultimately has the 

power to approve the RP.27 However, 

before submission to the LCH SA Risk 

Committee, the RP is reviewed and 

validated by the Executive Risk 

Committee of LCH SA’s parent 

company, LCH Group.28

The Default Management Group is 

responsible for the management of 

clearing member defaults while all 

critical decisions are escalated and 

submitted to the LCH SA Default Crisis 

Management Team (‘‘DCMT’’).29 The 

triggering of recovery measures is 

subject to discussion in the DCMT and 

approval by the LCH SA CEO.30

The management of non-clearing 

member events will vary based on the 

nature of the event.31 For example, 

investment losses and liquidity 

shortfalls are managed by the 

departments responsible for controlling 

such risks within the parameters set by 

the Board.32 Similarly, operational risks 

are managed by each business line in 

accordance with the operational risk 

policy approved by the Board.33

Business risk is managed by individual 

business lines, with a second line 

challenge performed by the risk and 

finance departments to verify if 

sufficient capital buffers are available 

for the applicable business risks.34

Matters are escalated to the Management 

Committee when the RP is triggered and 

the LCH SA Board will approve 

implementation of the RP.35

B. The WDP (LCH SA–2017–013) 

In the event a recovery is not 

successful, LCH SA would invoke its 

WDP to wind down its operations to full 

service closure in an orderly manner, 

thereby minimizing the disruption to 

clearing members, market participants, 

and the broader financial system. The 

WDP would be triggered after a 

determination by the LCH SA Board that 

all the recovery tools have been 

exhausted and have failed to return LCH 

SA to business as usual.36 A voluntary 

wind-down not precipitated by these 

extreme events is not considered under 

the WDP.37 The WDP would set forth 

clear mechanisms for the transfer of 

LCH SA’s membership and business, 

and would be designed to facilitate 

continued access to critical services and 

to minimize market impact.38

The decision to wind down would be 

taken by the Board and ultimately the 

LCH SA shareholders, upon advice of 

the Executive Risk Committee and Local 

Management Committee (‘‘LMC’’).39 The 

LMC or DCMT would monitor the 

implementation of the WDP.40 LCH SA 

would consult with all relevant 

regulatory authorities before making a 

decision to wind down and, unless all 

clearing services have already been 

closed, the French Autorite ́ de Controˆle 

Prudentiel et de Resolution (‘‘ACPR’’) 

would have to approve such a 

decision.41 LCH SA would also keep 

relevant regulatory authorities regularly 

informed of the plan’s 

implementation.42 If LCH SA was in 

resolution at the time, the relevant 

regulatory authority governing the 

resolution of LCH SA would need to 

make the decision to wind-down.43

The WDP assumes that LCH SA’s 

businesses would be wound down until 

full closure, including the closure of all 

its business lines at the same time.44

This is a worst case assumption, 

however, and the WDP acknowledges 

that it is likely that in the phases 

preceding the decision to wind-down, 

some business lines will have been 

closed, transferred, or scaled down.45

The WDP provides that LCH SA 

would publish written notice to the 

clearing members that a wind-down 

event has occurred and potential dates 

by which transactions will no longer be 

accepted for clearing.46 In a non-default 

situation or in a situation where the 

corresponding business line is still 

active, LCH SA would attempt to give 

clearing members the maximum time 

necessary to clear transactions in the 

normal course, close-out positions, and 

switch to another central 

counterparty.47

In line with the RP, the WDP 

describes the functions of LCH SA and 

distinguishes critical functions that LCH 

SA provides to the market (all of LCH 

SA’s clearing functions are considered 

critical); services that are critical to the 

support of LCH SA’s critical functions 

(such as IT, risk, operations, and 

collateral and risk management); and 

non-critical support functions (such as 

finance, legal, and human resources). 

The WDP then provides detail about the 

closure of these functions. For instance, 

the treasury function would close once 

all clearing services have ceased and 

monies are paid by LCH SA and its 

members.48 Further, once the WDP is 

implemented, LCH SA would deposit 

remaining cash in central bank accounts 

or invest the cash in instruments with 

maturities no longer than same-day 

repos.49 LCH SA would keep active any 

other supporting operational, 

information technology, or risk 

functions until all positions are 

closed.50 Finally, the WDP describes the 

closure of LCH SA’s clearing services 

and provides citations to the various 

clearing services’ rule book provisions 

giving a legal basis for the actions taken 

to effectuate the WDP.51

The WDP further notes that LCH SA’s 

contractual agreements with third-party 

service providers, such as information 

technology or venue providers, contain 

wind-down provisions that permit LCH 

SA to exit the agreements under 

particular conditions.52

Separately from the WDP, but in line 

with the processes and timeline 

described in the WDP, LCH SA 

calculates the costs required for a wind 

down. These costs encompass staff 

salaries, indemnities for staff departure, 


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53 Id. 

54 Id. 

55 15 U.S.C. 78s(b)(2)(C). 

56 15 U.S.C. 78q–1(b)(3)(F). 

57 17 CFR 240.17Ad–22(e)(2)(i), (iii), and (v); 

(e)(3)(ii); (e)(15)(i)–(ii). 

58 15 U.S.C. 78q–1(b)(3)(F). 

59 15 U.S.C. 78q–1(b)(3)(F). 

60 17 CFR 240.17Ad–22(e)(2)(i), (iii), and (v). 

costs to be paid to suppliers during 

notice periods, and all foreseeable costs 

that would be due in the event of a 

wind-down.53 Based on these 

calculations, the WDP concludes that 

these costs would be less than the 

capital LCH SA holds under EU 

regulations (capital equal to the 

operating expenses for a six (6) month 

period) and that LCH SA would be in a 

position to close the company within 

six months of the decision to winddown.54

III. Discussion and 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 such 

proposed rule change is consistent with 

the requirements of the Act and the 

rules and regulations thereunder 

applicable to such organization.55 For 

the reasons given below, the 

Commission finds that the proposed 

rule changes are consistent with Section 

17A(b)(3)(F) of the Act 56 and Rules 

17Ad–22(e)(2)(i), (iii), and (v), 17Ad– 

22(e)(3)(ii), and 17Ad–22(e)(15)(i)–(ii) 

thereunder.57

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, 

as well as to assure the safeguarding of 

securities and funds which are in the 

custody or control of LCH SA or for 

which it is responsible, and, in general, 

to protect investors and the public 

interest.58

As described above, the RP would 

specify the steps that LCH would take 

in recovery and the governance 

framework applicable to taking such 

steps. It would analyze the anticipated 

impact of the recovery tools, the 

incentives created by such tools, and the 

risks associated with using such tools. It 

would also explain how the tools used 

in the plan are transparent, measurable, 

manageable, and controllable. The 

Commission believes that by specifying 

the steps LCH SA would take and the 

tools it would use to bring about 

recovery in the face of losses, the RP 

would increase the likelihood that 

recovery would be orderly, efficient, 

and successful. In increasing the 

likelihood that recovery of LCH SA 

would be orderly, efficient, and 

successful, the Commission believes 

that the RP would enhance LCH SA’s 

ability to maintain the continuity of its 

critical services (including clearance 

and settlement services) during, 

through, and following periods of 

extreme stress giving rise to the need for 

recovery, thereby promoting the prompt 

and accurate clearance and settlement of 

CDS transactions. The Commission also 

believes that the RP would help assure 

the safeguarding of securities or funds 

in the custody or control of LCH SA by 

reducing the likelihood of a disorderly 

or unsuccessful recovery, which could 

otherwise disrupt access to such 

securities or funds. For the same reason, 

the Commission also believes the RP 

would be consistent with the protection 

of investors and the public interest. 

Similarly, the Commission believes 

that the WDP would enhance LCH SA’s 

ability to promote the prompt and 

accurate clearance and settlement of 

securities transactions and to safeguard 

securities and funds in its control by 

establishing a plan to effectuate an 

orderly wind down. Specifically, the 

WDP’s governance process and notice 

provisions would facilitate the orderly 

close-out of positions and potential 

transfer of positions to other central 

counter parties. Therefore, the 

Commission believes that these 

provisions would enhance LCH SA’s 

ability to maintain and continue the 

prompt and accurate clearance and 

settlement of CDS transactions by 

assuring that such transactions are 

closed-out and transferred to other 

central counterparties in an orderly and 

transparent manner. Moreover, by 

specifying in advance the steps LCH SA 

would take in a wind down, the WDP 

would assure an efficient and orderly 

wind down of LCH SA. The 

Commission believes that this, in turn, 

would assure the safeguarding of 

securities or funds in the custody or 

control of LCH SA by reducing the 

likelihood of an inefficient or disorderly 

wind down, which could disrupt access 

to such securities or funds. Finally, the 

Commission believes that the WDP’s 

requirement that LCH SA deposit 

remaining cash in central bank accounts 

and limit investment options to short 

term highly-liquid instruments would 

further enhance LCH SA’s ability to 

safeguard funds in its control by 

reducing the risk of liquidity constraints 

and investment losses during a wind 

down. 

Therefore, the Commission finds that 

the proposed rule changes would 

promote the prompt and accurate 

clearance and settlement of securities 

transactions, assure the safeguarding of 

securities and funds in LCH SA’s 

custody and control, and, in general, 

protect investors and the public interest, 

consistent with the Section 17A(b)(3)(F) 

of the Act.59

B. Consistency With Rules 17Ad– 

22(e)(2)(i), (iii), and (v) 

Rules 17Ad–22(e)(2)(i), (iii), and (v) 

require that LCH SA establish, 

implement, maintain, and enforce 

written policies and procedures 

reasonably designed to provide for 

governance arrangements that are clear 

and transparent, that support the public 

interest requirements in Section 17A of 

the Act applicable to clearing agencies, 

and the objectives of owners and 

participants, and that specify clear and 

direct lines of responsibility.60

The RP would identify clear lines of 

responsibility for its preparation and 

final approval, the monitoring of its use, 

and the functioning of the recovery 

tools. The RP would also specify the 

process LCH SA would take to receive 

input from various parties at LCH SA, 

including management committees and 

the Board. Further, the RP would 

enhance transparency by including 

member representatives in the review of 

the RP. The Commission believes that 

these lines of control and input from 

various LCH SA stakeholders can 

contribute to establishing, 

implementing, maintain and enforcing 

clear and transparent governance 

arrangements that support the public 

interest requirements in Section 17A of 

the Act applicable to clearing agencies, 

and the objectives of owners and 

participants. 

The WDP similarly would identify 

clear lines of responsibility for the 

invocation, monitoring, and approval of 

the WDP, and ultimately, a wind down. 

It would enhance transparency by 

requiring final approval by the LCH SA 

shareholders and providing for 

communication to clearing members 

and other users of LCH SA’s services. 

The Commission believes that both of 

these features of the WDP would 

represent clear and transparent 

governance arrangements. 

Therefore, the Commission finds that 

the proposed rule changes would 

establish clear and transport governance 

arrangements for the RP and WDP, 


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61 17 CFR 240.17Ad–22(e)(2)(i), (iii), and (v). 

62 17 CFR 240.17Ad–22(e)(3)(ii). 

63 Id. 

64 Id. 

65 Id. 

66 Id. 

67 Id. 

68 17 CFR 240.17Ad–22(e)(15)(i)–(ii). 

69 17 CFR 240.17Ad–22(e)(15)(i)–(ii). 

70 17 CFR 240.17Ad–22(e)(15)(i)–(ii). 

71 17 CFR 240.17Ad–22(e)(15)(i)–(ii). 

72 15 U.S.C. 78q–1(b)(3)(F). 

73 17 CFR 240.17Ad–22(e)(2)(i), (iii), and (v); 

(e)(3)(ii); (e)(15)(i)–(ii). 

consistent with Rules 17Ad–22(e)(2)(i), 

(iii), and (v).61

C. Consistency With Rule 17Ad– 

22(e)(3)(ii) 

Rule 17Ad–22(e)(3)(ii) requires that 

LCH SA establish, implement, maintain 

and enforce written policies and 

procedures reasonably designed to 

maintain a sound risk management 

framework for comprehensively 

managing legal, credit, liquidity, 

operational, general business, 

investment, custody, and other risks 

that arise in or are borne by LCH SA, 

which includes plans for the recovery 

and orderly wind-down of LCH SA 

necessitated by credit losses, liquidity 

shortfalls, losses from general business 

risk, or any other losses.62

The Commission believes that the 

information the RP would provide about 

the steps that LCH SA would take, and 

the tools it would use, to effectuate a 

recovery of LCH SA would enhance 

LCH SA’s ability to recover from credit 

losses, liquidity shortfalls, general 

business risk losses, or other losses, 

consistent with Rule 17Ad– 

22(e)(3)(ii).63 Specifically, the 

information from the RP would enable 

LCH SA to prepare in advance for the 

use of such tools and practice the use of 

such tools, which would in turn 

enhance LCH SA’s ability to use such 

tools effectively to carry out a successful 

recovery. In addition, by establishing a 

single source of information about, and 

steps needed to effectuate, a recovery of 

LCH SA, the RP would allow LCH SA 

personnel to effectuate a recovery in a 

consistent and coordinated fashion, and 

would thereby increase the likelihood of 

a successful recovery. Moreover, by 

identifying and assessing available 

recovery tools, the Commission believes 

that the RP would enhance LCH SA’s 

ability to use such tools effectively to 

bring about a recovery by identifying in 

advance which tools may be most 

effective for different situations or 

needs, consistent with Rule 17Ad– 

22(e)(3)(ii).64

Similarly, in providing detailed 

information about the governance 

requirements related to triggering and 

implementing the WDP discussed in 

more detail above, the Commission 

believes that the WDP would enhance 

LCH SA’s ability to effectuate an orderly 

wind-down, consistent with Rule 17Ad– 

22(e)(3)(ii).65 Specifically, by setting out 

in advance the steps LCH SA would 

take to trigger and effectuate a winddown, the WDP would enable LCH SA 

to prepare in advance for a wind-down, 

and practice the steps needed to 

effectuate a wind-down, which the 

Commission believes would enhance 

LCH SA’s ability to use the WDP 

effectively to carry-out an orderly winddown. In addition, by establishing a 

single source of information about, and 

steps needed to effectuate, a wind-down 

of LCH SA, the Commission believes the 

WDP would allow LCH SA personnel to 

effectuate a wind-down in a consistent 

and coordinated fashion, and would 

thereby increase the likelihood of an 

orderly wind-down. Finally, the WDP 

would identify the legal basis for LCH’s 

actions with respect to a potential winddown, including relevant citations to 

provisions of the rule books of its 

various clearing services and 

contractual agreements, which the 

Commission believes would further 

facilitate a well-reasoned, legal, and 

orderly wind-down process by 

providing LCH SA with a single source 

of information and steps needed for a 

wind-down, consistent with Rule 17Ad– 

22(e)(3)(ii).66

Therefore, the Commission finds that 

the proposed rule changes would be 

plans for the orderly recovery and wind 

down of LCH SA, consistent Rule 

17Ad–22(e)(3)(ii).67

D. Consistency With Rules 17Ad– 

22(e)(15)(i)–(ii) 

Rules 17Ad–22(e)(15)(i)–(ii) require 

LCH SA to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

identify, monitor, and manage its 

general business risk and hold sufficient 

liquid net assets funded by equity to 

cover potential general business losses 

so that LCH SA can continue operations 

and services as a going concern if those 

losses materialize, including by (i) 

determining the amount of liquid net 

assets funded by equity based upon its 

general business risk profile and the 

length of time required to achieve a 

recovery or orderly wind-down, as 

appropriate, of its critical operations 

and services if such action is taken and 

(ii) holding liquid net assets funded by 

equity equal to the greater of either (x) 

six months of the LCH SA’s current 

operating expenses, or (y) the amount 

determined by the board of directors to 

be sufficient to ensure a recovery or 

orderly wind-down of critical 

operations and services.68

LCH SA’s RP would include a 

quantitative assessment of the situations 

that could necessitate a recovery and 

related recovery tools. This quantitative 

assessment would consider the potential 

impact to LCH SA’s liquid net assets 

funded by equity, including its surplus 

capital. It would also include an 

assessment of the time to implement the 

various recovery tools. Thus, the 

Commission finds that the RP would 

indicate the potential cost and length of 

recovery, consistent with Rules 17Ad– 

22(e)(15)(i)–(ii).69

Similarly, LCH SA’s WDP would 

calculate costs related to a wind down. 

These costs would include staffing, 

technological, facilities, legal, and other 

resources necessary during the actual 

wind-down period. Further, the WDP 

concludes, based on recently audited 

amounts, that LCH SA would hold 

highly liquid resources corresponding to 

six months of operating expenses and 

that this amount would exceed the 

estimated costs of conducting a winddown. The WDP also concludes that the 

length of time it would take LCH SA to 

wind-down and close clearing services 

would be six months from the decision 

to wind-down. Thus, the Commission 

finds that the WDP would indicate LCH 

SA’s ability to effectuate a wind down 

within six months of the decision to 

wind-down at a lower cost than the 

amount of its liquid resources, 

consistent with Rules 17Ad– 

22(e)(15)(i)–(ii).70

Therefore, the Commission finds that 

the proposed rule changes would 

determine the length of time required to 

achieve a recovery or orderly winddown of LCH SA and the associated 

costs and would further ensure that LCH 

SA holds liquid net assets greater than 

these costs, consistent with Rules 

17Ad–22(e)(15)(i)–(ii).71

III. Conclusion 

On the basis of the foregoing, the 

Commission finds that the proposed 

rule changes are consistent with the 

requirements of the Act, and in 

particular, Section 17A(b)(3)(F) of the 

Act 72 and Rules 17Ad–22(e)(2)(i), (iii), 

and (v), 17Ad–22(e)(3)(ii), 17Ad– 

22(e)(15)(i)–(ii) thereunder.73

It is therefore ordered pursuant to 

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

proposed rule change (SR–LCH SA– 


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28890 Federal Register / Vol. 83, No. 120 / Thursday, June 21, 2018 / Notices 

74 In approving the proposed rule change, the 

Commission considered the proposal’s impacts on 

efficiency, competition, and capital formation. 15 

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

75 In approving the proposed rule change, the 

Commission considered the proposal’s impacts on 

efficiency, competition, and capital formation. 15 

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

76 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

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

4 17 CFR 240.19b–4(f)(2). 

5The term ‘‘Member’’ is defined as ‘‘any 

registered broker or dealer that has been admitted 

to membership in the Exchange.’’ See Exchange 

Rule 1.5(n). 

6See e.g., NYSE Arca Equities Fees and Charges, 

NYSE Arca Marketplace: Other Fees and Charges, 

Connectivity Fees. See also, Nasdaq Phlx LLC 

Pricing Schedule, Section XI, Direct Connectivity to 

Phlx. 

7For example, if a market participant uses a 1 

gigabyte Disaster Recovery Physical Port to connect 

to the Disaster Recovery Systems for both EDGA 

and EDGX, the market participant would only be 

assessed one monthly fee of $2,000. 

8 15 U.S.C. 78f. 

9 15 U.S.C. 78f(b)(4). 

2017–012) be, and hereby is, 

approved.74

It is therefore ordered pursuant to 

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

proposed rule change (SR–LCH SA– 

2017–013) be, and hereby is, 

approved.75

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.76

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–13300 Filed 6–20–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–83449; File No. SR– 

CboeEDGA–2018–010] 

Self-Regulatory Organizations; Cboe 

EDGA Exchange, Inc.; Notice of Filing 

and Immediate Effectiveness of a 

Proposed Rule Change Related to 

Physical Port Fees for EDGA 

June 15, 2018. 

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

Securities Exchange Act of 1934 (the 

‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on June 1, 

2018, Cboe EDGA Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘EDGA’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I, II and III 

below, which Items have been prepared 

by the Exchange. The Exchange has 

designated the proposed rule change as 

one establishing or changing a member 

due, fee, or other charge imposed by the 

Exchange under Section 19(b)(3)(A)(ii) 

of the Act 3 and Rule 19b–4(f)(2) 

thereunder,4 which renders the 

proposed rule change effective upon 

filing with the Commission. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange filed a proposal to 

amend its fees and rebates applicable to 

Members 5 and non-Members of the 

Exchange pursuant to EDGA Rule 

15.1(a) and (c) to modify its fees for 

physical ports. 

The text of the proposed rule change 

is available at the Exchange’s website at 

www.markets.cboe.com, at the principal 

office of the Exchange, and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange 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. The 

Exchange has prepared summaries, set 

forth in Sections A, B, and C below, of 

the most significant parts of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to implement 

proposed changes to its fee schedule 

relating to physical connectivity fees, 

effective June 1, 2018. By way of 

background, a physical port is utilized 

by a Member or non-Member to connect 

to the Exchange at the data centers 

where the Exchange’s servers are 

located. The Exchange currently 

maintains a presence in two third-party 

data centers: (i) The primary data center 

where the Exchange’s business is 

primarily conducted on a daily basis, 

and (ii) a secondary data center, which 

is predominantly maintained for 

business continuity purposes. The 

Exchange currently assesses the 

following physical connectivity fees for 

Members and non-Members on a 

monthly basis: $2,000 per physical port 

for a 1 gigabyte circuit and $7,000 per 

physical port for a 10 gigabyte circuit. 

The Exchange proposes to increase the 

fees per physical ports from (i) $2,000 

to $2,500 per month, per port for a 1 

gigabyte circuit and (ii) $7,000 to $7,500 

per month, per port for a 10 gigabyte 

circuit. The Exchange notes the 

proposed fees enable it to continue to 

maintain and improve its market 

technology and services and also notes 

that the proposed fee changes are in line 

with the amounts assessed by other 

exchanges for similar connections.6

The Exchange also proposes to adopt 

separate physical port fees for 

connection to its secondary data center, 

which is predominantly maintained for 

business continuity purposes (‘‘Disaster 

Recovery Systems’’). Particularly, the 

Disaster Recovery Systems can be 

accessed via physical ports in Chicago. 

Members and Non-Members may 

maintain physical ports in order to be 

able to connect to the Disaster Recovery 

Systems in case of a disaster. Currently, 

physical ports that are used to connect 

to the Disaster Recovery Systems are 

assessed the same fees as physical ports 

used to connect to the Exchange’s 

trading system. The Exchange proposes 

to establish separate pricing for physical 

ports that are used to connect to the 

Disaster Recovery Systems (‘‘Disaster 

Recovery Physical Ports’’). Specifically, 

the Exchange proposes to assess a 

monthly fee of $2,000 per 1 gigabyte 

Disaster Recovery Physical Port and a 

monthly fee of $6,000 per 10 gigabyte 

Disaster Recovery Physical Port. This 

amount will continue to enable the 

Exchange to maintain the Disaster 

Recovery Physical Ports in case they 

become necessary. The Exchange notes 

that the Disaster Recovery Physical 

Ports may also be used to access the 

Disaster Recovery Systems for the 

following affiliate exchanges Cboe BZX 

Exchange, Inc., Cboe EDGX Exchange, 

Inc., Cboe BYX Exchange, Inc., Cboe C2 

Exchange, Inc., Cboe Exchange, Inc. and 

Cboe Futures Exchange, LLC as well. 

The Exchange proposes to provide that 

market participants will only be 

assessed a single fee for any Disaster 

Recovery Physical Port that also 

accesses the Disaster Recover Systems 

for these exchanges.7

2. Statutory Basis 

The Exchange believes that the 

proposed rule change is consistent with 

the objectives of Section 6 of the Act,8

in general, and furthers the objectives of 

Section 6(b)(4),9 in particular, as it is 

designed to provide for the equitable 

allocation of reasonable dues, fees and 

other charges among its Members and 

other persons using its facilities. The 

Exchange also notes that it operates in 


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