Federal Register / Vol. 83, No. 172 / Wednesday, September 5, 2018 / Notices 45155 

17 15 U.S.C. 78s(b)(3)(A). 

18 17 CFR 240.19b–4(f). 

19 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3All capitalized terms not defined herein have 

the same definition as the Rule Book, Supplement 

or Procedures, as applicable. 

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 17 and paragraph (f) of Rule 

19b–4 thereunder.18 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 rule-comments@

sec.gov. Please include File Number SR– 

CboeEDGX–2018–036 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–CboeEDGX–2018–036. 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 this 

filing will also be available for 

inspection and copying at the principal 

office of the Exchange. 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–CboeEDGX–2018–036 and 

should be submitted on or before 

September 26, 2018. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.19

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–19238 Filed 9–4–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–83983; File No. SR–LCH 

SA–2018–004] 

Self-Regulatory Organizations; LCH 

SA; Notice of Filing of Proposed Rule 

Change Relating to Implementation of 

Electronic Exercise Platform 

August 29, 2018. 

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 August 

24, 2018, 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. The Commission is publishing this 

notice to solicit comments on the 

proposed rule change from interested 

persons. 

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 amend its (i) CDS Clearing Rule Book 

(‘‘Rule Book’’), (ii) CDS Clearing 

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

CDS Clearing Procedures (‘‘Procedures’’) 

to incorporate new terms and to make 

conforming, clarifying and clean-up 

changes to implement a new electronic 

exercise platform (‘‘EEP’’) for the 

exercise of options by Clearing Members 

and their Clients. The text of the 

proposed rule change has been annexed 

as Exhibit 5.3

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. 

A. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

1. Purpose 

LCH SA is proposing to create an EEP 

for credit index options or swaptions to 

capture and support swaption exercise 

decisions by Clearing Members and 

Clients. Currently, the exercise of 

swaptions is effected through a manual 

bilateral notification process. The 

swaption exercise decisions are 

communicated bilaterally via email 

from the swaption buyer to the swaption 

seller of a matched pair transaction 

created by LCH SA for the purpose of 

the exercise or abandonment of the 

swaption transaction. The swaption 

buyer must then inform LCH SA that the 

exercise notice has been successfully 

delivered. LCH SA then manually 

effects the exercise decisions 

accordingly and updates its risk system. 

The proposed EEP will provide 

Clearing Members and their Clients with 

an electronic process that will reduce 

the operational risk caused by manual 

exercise and provide an effective system 

to monitor and manage the exercise of 

swaptions. The proposed rule change 

will require Clearing Members and 

Clients to use the EEP system to initiate 

the exercise of swaptions and will 

enable Clients to directly exercise 

swaptions through delegation by 

Clearing Members and receive reports. 

The EEP system will capture the 

exercise decisions in real time and 

notify the relevant swaptions sellers in 

real time. In addition, the EEP system 

will provide validation checks and 

exercise decision-making assistance and 

support, and will facilitate and support 

an anonymous exercise decision process 


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that the current manual process is not 

able to achieve. 

In connection with the launch of the 

EEP, LCH SA proposes to modify its 

Rule Book, Supplement and Procedures 

to implement the EEP and manage the 

operational risk arising from the EEP 

while improving the clarity of the 

Rulebook, Supplement and Procedures. 

(i) CDS Clearing Rule Book 

The Rule Book will be amended by 

adding new defined terms and 

provisions to account for the ability of 

Clients to directly exercise swaptions 

utilizing the EEP through delegation by 

Clearing Members. The details of the 

mechanism for Clients to exercise 

swaptions via delegation by Clearing 

Members will be implemented through 

amendments to the Supplement and 

Procedures as described below. With 

respect to the Rule Book, LCH SA 

proposes to amend Article 1.2.10.3 with 

respect to the liability of LCH SA to 

account for the ability of Clients to 

exercise swaptions utilizing the EEP as 

an Exercise Delegation Beneficiary. 

Article 1.2.10.3 will be amended to add 

new clause (xxii) to the effect that LCH 

SA will not be liable for any Damage 

claimed by a clearing Member based on 

the failure of an Exercise Delegation 

Beneficiary to perform its obligations in 

relation to a delegation by a Clearing 

Member of the power to Exercise or 

Abandon Exercise Cleared Transactions 

or in connection with or arising from 

the Exercise or Abandonment (or 

attempt thereof) of an Exercise Cleared 

Transaction by such exercise Delegation 

Beneficiary. In addition, new clause 

(xxiii) will be added to Article 1.2.10.3 

to provide that LCH SA will not be 

liable for any improper use or disclosure 

by a third party, including a Client, of 

information made available on a Client 

Portal Account further to a defined 

process of requesting LCH SA to make 

certain information available on the 

Client Portal Account in accordance 

with the Procedures (such process is 

referred to as ‘‘Feeding Request’’ in the 

Procedures). 

Further, LCH SA proposes to add new 

provisions to Title V CDS CCM Client 

Clearing Services and Title VI CDS FCM 

Client Clearing to provide for exercise of 

swaptions by Clients. Article 5.1.1.2(vii) 

and Article 6.1.1.2(vii) will be added to 

require a CCM or an FCM to ensure that 

a CCM Client or FCM Client, as 

applicable, has duly created a Client 

Portal Account before granting an 

Exercise Delegation to such CCM Client 

or FCM Client. Article 5.1.1.3(xx) and 

6.1.1.3(xvii) will be added to require a 

CCM or an FCM to delegate sufficient 

powers to a CCM Client or a FCM 

Client, as applicable, in order for the 

CCM Client or FCM Client, as 

applicable, to be duly authorized to 

Exercise or Abandon Exercise Cleared 

Transactions; in addition, a CCM Client 

or a FCM Client, as applicable, 

delegated and designated by a Clearing 

Member as being entitled to Exercise 

and Abandon Exercise Cleared 

Transactions on its behalf is required to 

Exercise or Abandon only through the 

relevant Client Portal Account unless 

there is an EEP Failure Event (as 

described below). 

In connection with the above, LCH SA 

also proposes to add new provisions to 

Title I General Provisions & Legal 

Framework of the Rule Book. First, new 

defined terms ‘‘Abandon’’, 

‘‘Abandonment’’, ‘‘Client Portal 

Account’’, ‘‘Delegating Clearing 

Member’’, ‘‘Exercise Delegation’’, 

‘‘Exercise Delegation Beneficiary’’, and 

‘‘Feeding Request’’ will be added and 

cross-reference the meanings given to 

these terms in Part C of the Supplement 

or Section 5 of the Procedures, as 

applicable. 

The amendments to the CDS Clearing 

Rule Book also contain typographical 

corrections and similar technical 

corrections and clarifications as well as 

various conforming references to the 

new or revised defined terms. Finally, 

corresponding changes to provision 

numbering throughout the CDS Clearing 

Rule Book have been made as necessary. 

(ii) CDS Clearing Supplement 

LCH SA also proposes to modify the 

Supplement to incorporate terms for 

implementing the new EEP, to remove 

inapplicable provisions after 

implementation of the EEP, and to make 

certain conforming and clean-up 

changes to improve clarity of the 

Supplement. 

Section 1 General Provisions of the 

Supplement will be amended to add 

certain defined terms and new 

provisions to implement the EEP and to 

make certain clean-up changes. Section 

1.2 will be amended by adding the 

following new defined terms. 

The terms ‘‘Abandon’’ and 

‘‘Abandonment’’ will be added to refer 

to the abandonment of an Exercise 

Cleared Transaction and the delivery of 

a valid Abandonment Notice by a 

Swaption Buyer (including delivery by 

a Client designated by the related 

Clearing Member as being entitled to 

Exercise and Abandon Exercise Cleared 

Transactions on its behalf) in respect of 

the Exercise Cleared Transactions of an 

Exercise Matched Pair. 

The term ‘‘CCM Client 

Communications Failure Event’’ will be 

added to cross reference the definition 

of CCM Client Communications Failure 

Event set out in the Mandatory 

Provisions in Appendix VIII to the 

Supplement. 

The term ‘‘Clearing Member 

Communications Failure Event’’ will be 

added to cross reference the definition 

of Clearing Member Communications 

Failure Event set out at Section 6.10 of 

the Supplement. 

The existing term ‘‘Clearing Member 

Notice’’ will be amended to include a 

Swaption Clearing Member Notice or a 

Swaption Restructuring Clearing 

Member Notice. 

The term ‘‘Clearing Member Portal 

Account’’ will be added to refer to the 

account of a Clearing Member 

established in the LCH Portal for the 

purposes of, among other things, the 

Exercise and Abandon of Exercise 

Cleared Transactions. 

The term ‘‘Client Portal Account’’ and 

‘‘Client Portal Account Number’’ will be 

added to refer to the account of a Client 

established in the LCH Portal for the 

purposes of, among other things, the 

Exercise and Abandonment of Exercise 

Cleared Transactions, and to refer to the 

unique account number assigned by 

LCH SA to a Client Portal Account. 

The term ‘‘EEP Controls’’ will be 

added to cross reference the definition 

of EEP Controls set out at Section 6.3 of 

the Supplement. 

The terms ‘‘EEP Failure Event’’, ‘‘EEP 

Failure Event Time’’ and ‘‘EEP 

Resolution Time’’ and ‘‘Electronic 

Exercise Platform’’ or ‘‘EEP’’ will be 

added to refer to the occurrence of LCH 

SA becoming aware that the EEP is or 

will be unavailable for the submission 

or receipt of Option Intents, the time at 

which the relevant EEP Failure Event 

occurred, the time at which the relevant 

EEP Failure Event is deemed to have 

been resolved, and the platform made 

available by LCH SA for the Exercise 

and Abandon of Exercise Cleared 

Transaction through the submission of 

Option Intents. 

The term ‘‘Exercise’’ will be amended 

by making conforming changes to 

include deemed delivery of a valid 

Exercise Notice pursuant to new Section 

6.3 (Exercise and Abandonment by way 

of EEP) or new Section 6.4 (Delegation 

by Clearing Members to Client). 

The term ‘‘Exercise Cleared 

Transaction’’ and ‘‘Swaption 

Restructuring Cleared Transaction’’ will 

be amended by making a clean-up 

change to replace the word ‘‘Clause’’ 

with the word ‘‘Section’’. 

The term ‘‘Exercise Delegation 

Beneficiary’’ will be added to refer to 

the Client of a Clearing Member 

designated by such Clearing Member as 

being entitled to Exercise and Abandon 


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Exercise Cleared Transactions on such 

Clearing Member’s behalf. 

The term ‘‘Force Submission’’ will be 

added to cross reference the definition 

of Force Submission set out at Section 

5.19.2 of the Procedures. 

The term ‘‘LCH Portal’’ will be added 

to cross reference the definition of LCH 

Portal set out at Section 5.3 of the 

Procedures. 

The term ‘‘Option Intent’’ will be 

added to refer to the election of Matched 

Buyer (or its Exercise Delegation 

Beneficiary as applicable) in the EEP to 

Exercise or Abandon an Exercise 

Cleared Transaction. 

The term ‘‘Protected Exercise 

Matched Pair Report’’ will be added to 

cross reference the definition of 

Protected Exercise Matched Pair Report 

set out at Section 6.1 of the Supplement. 

The term ‘‘Submission Time’’ will be 

added to cross reference the definition 

of Submission Time set out at Section 

6.3 of the Supplement. 

The terms ‘‘Swaption CCM Client 

Notice’’ and ‘‘Swaption CCM Client 

Notice Deadline’’ will be added to cross 

reference the notice and the deadline 

described in Mandatory Provision 

Section 5.5 regarding the duty to deliver 

a Swaption CCM Client Notice by the 

Swaption CCM Client Notice Deadline. 

The terms ‘‘Swaption Clearing 

Member Notice’’ and ‘‘Swaption 

Clearing Member Notice Deadline’’ will 

be added to cross reference the notice 

and the deadline described in new 

Section 6.5(c) as a consequence of an 

EEP Failure Event. 

The term ‘‘Swaption Notice’’ will be 

added to refer to either an Exercise 

Notice or an Abandonment Notice. 

The terms ‘‘Swaption Restructuring 

Clearing Member Notice’’ and 

‘‘Swaption Restructuring Clearing 

member Notice Deadline’’ will be added 

to cross reference the notice required to 

be delivered by a Clearing Member to 

LCH SA with respect to its delivery or 

receipt of any Credit Event Notice or 

Notice to Exercise Movement Option 

and the deadline described in new 

Section 5.7. 

Finally, a new paragraph (c) will be 

added to Section 1.7 to provide that, 

notwithstanding an FCM Clearing 

Member acting as agent for the account 

of an FCM Client with respect to Index 

Swaption Cleared Transactions, an FCM 

Clearing member shall designate its 

FCM Client to Exercise or Abandon 

Exercise Cleared Transactions on its 

behalf as its Exercise Delegation 

Beneficiary in accordance with the 

terms of the Supplement. 

Section 5 Restructuring will be 

amended to add new provisions to 

implement the EEP and to make certain 

clean-up and conforming changes that 

are not related to the implementation of 

EEP. Specifically, Section 5.1 will be 

amended to provide that if a CEN 

Triggering Period for a Subsequent 

Restructuring commences prior to the 

Expiration Date, any Swaption 

Restructuring Matched Pairs in respect 

of the First Restructuring shall also be 

Swaption Restructuring Matched Pairs 

in respect of the Subsequent 

Restructuring in order to better clarify 

this concept. Section 5.1(a) will be 

amended to add the word ‘‘contact’’ to 

clarify the term email address. 

New Section 5.6 will be added to 

reinstate certain provisions that will be 

deleted from Section 8 of the 

Supplement that provide for the 

requirements of delivery of Credit Event 

Notices and Notices to Exercise 

Movement Option with respect to 

Restructuring Cleared Transactions in 

order to group provisions relating to 

restructuring that are unrelated to the 

implementation of EEP within the same 

section. Specifically, Section 5.6 

reinstates that Credit Event Notices and 

Notices to Exercise Movement Option 

shall be delivered between Matched 

Buyer and Matched Seller of a Swaption 

Restructuring Matched Pair in 

accordance with the general rules 

relating to notices in the Supplement 

and the terms of the Swaption 

Restructuring Cleared Transaction. Such 

notices will be delivered in the 

delivering party’s own name and as 

designee of LCH SA in respect of the 

other Swaption restructuring Cleared 

Transaction of the Swaption 

Restructuring Matched Pair. 

New Section 5.7 will be added to 

reinstate certain provisions that will be 

deleted from Section 8 of the 

Supplement so that provisions regarding 

delivery and receipt of Swaption 

Restructuring Clearing Member Notices 

are addressed in the section governing 

restructuring. The moved provisions 

require each Clearing Member to notify 

LCH SA or provide a copy to LCH SA 

of any notices delivered or received by 

such Clearing Member consisting of a 

Swaption Restructuring Matched Pair, 

including any Credit Event Notices and 

Notices to Exercise Movement Option 

by no later than 5 p.m. on the last date 

on which such notice could validly be 

delivered. Such notices and deadline 

will be defined as ‘‘Swaption 

Restructuring Clearing Member Notice’’ 

and ‘‘Swaption Restructuring Clearing 

Member Notice Deadline’’. If LCH SA 

does not receive a Swaption 

Restructuring Clearing Member Notice 

on or prior to the relevant Swaption 

Restructuring Clearing Member Notice 

Deadline, LCH SA will not take any 

action in respect of the relevant 

Swaption Restructuring Matched Pair in 

respect of a Credit Event or Exercise 

Movement Option. Notwithstanding the 

fact that no Credit Event Notice or 

Notice to Exercise Movement Option 

has been received by LCH SA by the 

relevant Swaption Restructuring 

Clearing Member Notice Deadline, if 

LCH SA determines in its sole 

discretion that, such notice was in fact 

delivered or received directly by a 

Clearing Member and would have been 

effective, LCH SA shall use 

commercially reasonable efforts to give 

effect to the terms of such Credit Event 

Notice or Notice to Exercise Movement 

Option, as applicable. If LCH SA 

determines that it is not possible to give 

effect to the terms of any such Credit 

Event Notice or Notice to Exercise 

Movement Option, then Section 5.7 

provides an amount payable between 

the Clearing Members and how such 

amount will be determined. 

Section 6 Exercise Matched Pairs will 

be amended to add new provisions to 

implement the EEP and to make certain 

clean-up and conforming changes. 

Specifically, Section 6.1 will be 

amended to remove the requirement of 

LCH SA to notify the relevant Matched 

Buyer and Matched Seller comprised 

within each Exercise Matched Pair of 

the identity of each other; instead, the 

identity and the contact information of 

the Clearing Members within an 

Exercise Matched Pair will be provided 

by LCH SA to the relevant Matched 

Buyer and Matched Seller (and any 

Exercise Delegation Beneficiary thereof) 

in a report (defined as ‘‘Protected 

Exercise Matched Pair Report’’), the 

access to which will be restricted and 

the Clearing Members within an 

Exercise Matched Pair (and any 

applicable Exercise Delegation 

Beneficiaries) would be given access to 

the information in the report only upon 

occurrence of an EEP Failure Event. 

Section 6.2 will be amended by making 

conforming changes to delete the 

language regarding notification of 

relevant Clearing Members of Exercise 

Matched Pairs to account for the new 

process effected by EEP. 

New Section 6.3 entitled Exercise and 

Abandonment by way of EEP will be 

added to provide for the manner of 

Exercise or Abandonment of Exercise 

Cleared Transactions. Specifically, 

Section 6.3 will provide that an Option 

Intent submitted by Matched Buyer (or 

its Exercise Delegation Beneficiary on 

its behalf, as applicable) through the 

EEP will constitute the delivery of a 

valid Exercise Notice or Abandonment 

Notice for the purposes of the Exercise 

Cleared Transactions if (a) the 


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Submission Time for such Option Intent 

is prior to 4:00 p.m. (London time) and 

(b) LCH SA has completed those steps 

necessary to make such Option Intent 

available for viewing in the EEP, 

including validation of the EEP 

Controls. ‘‘Submission Time’’ for an 

Option Intent will be the time, as 

recorded by LCH SA, as of which such 

Option Intent is submitted via the EEP 

by the relevant matched Buyer (or its 

Exercise Delegation Beneficiary on its 

behalf, if applicable) and ‘‘EEP 

Controls’’ will mean the controls 

specified in Section 5 of the Procedures 

with respect to the Option Intent. An 

Option Intent will become irrevocable 

by the Swaption Buyer as from the 

Submission Time. 

New Section 6.4 entitled Delegation 

by Clearing Members to Clients will be 

added to provide for delegation of 

Exercise or Abandonment by Clearing 

Members to their Clients. Specifically, 

Section 6.4 will provide that, with 

respect to the Exercise and 

Abandonment of the Exercise Cleared 

Transactions of an Exercise Matched 

Pair which are Client Cleared 

Transactions, Clearing Members shall 

designate its relevant Client to act on its 

behalf and such designation will take 

effect as soon as reasonably practicable 

(but no later than five Business Days) 

following receipt by LCH SA of a duly 

completed and signed Exercise 

Delegation Form. The Client so 

designated will be the Exercise 

Delegation Beneficiary. The designation 

or delegation cannot be revoked. Where 

a Clearing Member designates its Client 

in accordance with new Section 6.4, any 

Option Intent submitted by the 

designated Client via its Client Portal 

Account in the EEP prior to 4:00 p.m. 

(London Time) on the Expiration Date 

will be deemed to constitute the 

delivery by Matched Buyer of a valid 

Exercise Notice or Abandonment 

Notice. Similarly, any Swaption Notices 

delivered by a designated Client will be 

interpreted as delivery by a Clearing 

Member. 

New Section 6.5 entitled EEP failure 

and resolution will be added to address 

the circumstances where there is an EEP 

failure and subsequent resolution of 

such failure. Specifically, Section 6.5 

will require LCH SA to notify Clearing 

Members and Exercise Delegation 

Beneficiaries of an EEP Failure Event 

(i.e., the EEP is or will be unavailable for 

the submission or receipt of Option 

Intents) as soon as reasonably 

practicable and in any case within one 

hour after the occurrence of the EEP 

Failure Event. Following the occurrence 

of an EEP Failure Event, Clearing 

Members or their Exercise Delegation 

Beneficiaries, as applicable, will be 

authorized to access the information 

contained in the Protected Exercise 

Matched Pair Report in order to obtain 

the identity and contact information of 

the other Clearing Member or its 

Exercise Delegation Beneficiary within 

an Exercise Matched Pair. If the EEP 

Failure Event has been resolved and is 

no longer in effect, LCH SA is required 

to notify Clearing Members of such 

resolution and the time at which the 

EEP Failure Event is deemed to have 

been resolved (the ‘‘EEP Resolution 

Time’’), so submission of Option Intents 

may resume on the EEP. 

Section 6.5 will further provide that, 

if an EEP Failure Event has occurred 

and is continuing, delivery of Swaption 

Notices will fall back to the existing 

manual delivery process and if a 

Clearing Member that is a Matched 

Buyer has designated its Client as its 

Exercise Delegation Beneficiary, the 

Client will be entitled to send a 

Swaption Notice to the Matched Seller, 

using the notices details provided by 

LCH SA in the Protected Exercise 

Matched Pair Report. Similarly, if a 

Clearing Member that is a Matched 

Seller has designated its Client as its 

Exercise Delegation Beneficiary, then 

Swaption Notices will be sent by the 

Matched Buyer (or its Client as its 

Exercise Delegation Beneficiary, as 

applicable) to the Client of the Clearing 

Member who is the Matched Seller. 

In addition, Section 6.5 will provide 

for oral, including telephonic, delivery 

of Abandonment Notices, followed by 

written confirmation from the Matched 

Buyer (or its Exercise Delegation 

Beneficiary, as applicable) to the 

Matched Seller (or its Exercise 

Delegation Beneficiary, as applicable) 

within one Transaction Business Day. 

For the avoidance of doubt, Section 6.5 

will clarify that, any Swaption Notices 

delivered via the EEP prior the EEP 

Failure Event Time will be valid and not 

be affected by the EEP Failure Event; 

and any Swaption Notice delivered or 

purported to be delivered via the EEP at 

or following the EEP Failure Event Time 

but prior to the EEP Resolution Time 

will not be valid or effective. 

Finally, Section 6.5 will provide that, 

as the case in today’s manual exercise 

process, each Clearing Member is 

required to notify LCH SA or deliver a 

copy to LCH SA of any Swaption 

Notices delivered by such Clearing 

Member to another Clearing Member in 

an Exercise Matched Pair during an EEP 

Failure Event by no later than 5 p.m. 

(CET) on the Expiration Date. Such 

notice of delivery of such copy to LCH 

SA will be defined as a Swaption 

Clearing Member Notice. If a Clearing 

Member has designated its Client as its 

Exercise Delegation Beneficiary, then 

the Client may notify LCH SA or deliver 

a copy to LCH SA of any Swaption 

Notices delivered by such Client to 

another Clearing Member (or its 

Exercise Delegation Beneficiary, as 

applicable) in an Exercise Matched Pair 

while an EEP Failure Event is 

continuing. 

New Section 6.6 entitled 

Abandonment of Exercise Cleared 

Transactions will be added to address 

Abandonment of Exercise Cleared 

Transactions. It will restate the first part 

of the existing Section 6.4 of the 

Supplement with certain adjustment to 

reflect that Abandonment of Exercise 

Cleared Transaction will not be done on 

the EEP and the Swaption Buyer will 

not deliver Abandonment Notices 

bilaterally to the Swaption Seller. If, on 

the Expiration Date, the Swaption Buyer 

elects to abandon the Exercise Cleared 

Transactions of the Exercise matched 

Pair, each Exercise Cleared Transaction 

shall be terminated in whole. 

New Section 6.7 entitled Termination 

of Exercise Cleared Transactions will be 

added to address the circumstances 

under which Exercise Cleared 

Transactions will be terminated taking 

into account implementation of the EEP. 

Specifically, it will provide that LCH SA 

will terminate the Exercise Cleared 

Transactions of the relevant Exercised 

Matched Pair if no Option Intent is 

submitted using the EEP or, if there is 

an EEP Failure Event, LCH SA does not 

receive a Swaption Clearing Member 

Notice (or Swaption CCM Client Notice) 

from a Clearing Member or its Exercise 

Delegation Beneficiary on or prior to the 

deadline specified in Section 6.5 

described above. 

New Section 6.8 entitled 

Consequences of no Swaption Clearing 

Member Notice or Swaption CCM Client 

Notice being received by LCH SA will 

be added to address the consequences of 

no Swaption Clearing Member Notice 

being received by LCH SA by the 

Swaption Clearing Member Notice 

Deadline (or, in the case of a CCM Client 

Cleared Transaction, that no Swaption 

CCM Client Notice has been received by 

LCH SA in respect of an Exercise Notice 

by the Swaption CCM Client Notice 

Deadline). If there is an EEP Failure 

Event and such event is continuing, if 

LCH SA determines in its sole 

discretion that an Exercise Notice was 

in fact delivered by a Clearing Member 

(or its Client as the Exercise Delegation 

Beneficiary, as applicable) and would 

have been effective for the purposes of 

the Supplement, then LCH SA will use 

commercially reasonable efforts to give 

effect to the terms of the Exercise Notice 


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and the effect would be as though LCH 

SA had received a Swaption Clearing 

Member Notice by the Swaption 

Clearing Member Notice Deadline (or, in 

the case of a CCM Client Cleared 

Transaction, as though a Swaption CCM 

Client Notice has been received by LCH 

SA in respect of an Exercise Notice by 

the Swaption CCM Client Notice 

Deadline). If LCH SA determines that it 

is not possible to give effect to the terms 

of any such Exercise Notice, then the 

relevant Clearing Members (or their 

Exercise Delegation Beneficiaries, as 

applicable) will have rights against each 

other for settlement payment due two 

Transaction Business Days following the 

delivery of a notice that such amount is 

due and payable, as though they were a 

party to a bilateral credit default swap 

transaction on the terms of the relevant 

Underlying Index Transaction. LCH SA 

will not have any liability for any 

payment in respect of the Exercise 

Clearing Transactions or the ensuing 

bilateral credit default swap transaction. 

New Section 6.10 entitled Clearing 

Member Communications Failure Event 

and CCM Client Communications 

Failure Event will be added to address 

Clearing Member and CCM Client 

communications failures. Specifically, 

new Section 6.10 will provide that, if a 

Clearing member or its Exercise 

Delegation Beneficiary experiences 

significant communications or 

information technology failure resulting 

in it being impossible or impracticable 

to use EEP (a ‘‘Clearing Member 

Communications Failure Event’’), such 

Clearing Member or its Exercise 

Delegation Beneficiary shall use the 

existing manual exercise process to 

delivery or receive any Exercise Notice 

or Abandonment Notice to and from 

LCH SA in accordance with the general 

provision regarding delivery of notices 

in Section 8 of the Supplement and not 

through the EEP. Similarly, if a CCM 

Client experiences a significant 

communications or information 

technology failure resulting in it being 

impossible or impracticable to use EEP 

(a ‘‘CCM Client Communications Failure 

Event’’), such CCM Client will, under 

Mandatory Provision 5.7, have the right 

to use the existing manual exercise 

process to deliver or receive any 

Exercise Notice or Abandonment Notice 

to and from LCH SA in accordance with 

the general provision regarding delivery 

of notices in Section 8 of the 

Supplement and not through the EEP. 

If the Clearing Member (or Exercise 

Delegation Beneficiary, as applicable) 

affected by a Clearing Member 

Communications Failure Event is a 

Matched Buyer, upon receipt of a 

Swaption Notice delivered by such 

Clearing Member or its Exercise 

Delegation Beneficiary, as applicable, 

LCH SA shall submit an Option Intent 

in the EEP system on behalf of such 

Clearing Member or its Exercise 

Delegation Beneficiary. Provided that (a) 

the Submission Time for such Option 

Intent is prior to 4:00 p.m. (London 

time) and (b) LCH SA has completed 

those steps necessary to make such 

Option Intent available for viewing in 

the EEP, including validation of the EEP 

Controls, then such Option Intent shall 

be deemed to constitute the delivery of 

a valid Exercise Notice or Abandonment 

Notice. With respect to a Swaption 

Notice delivered pursuant to the 

preceding paragraph (or, in the case of 

a CCM Client Cleared Transaction 

pursuant to Mandatory Provision 5.7), 

LCH SA may determine in its sole 

discretion that it is not able to submit 

the relevant Option Intent in the system 

prior to the exercise deadline, in which 

case the affected Clearing Member or 

Exercise Delegation Beneficiary will be 

deemed not to have submitted an 

Option Intent and the relevant Exercise 

Cleared Transactions will be terminated. 

LCH SA may, in its sole discretion, elect 

to register the Exercise or Abandonment 

of an Exercise Cleared Transaction in an 

alternative internal system of LCH SA. 

If the Clearing Member (or Exercise 

Delegation Beneficiary, as applicable) 

affected by a Clearing Member 

Communications Failure Event or CCM 

Client Communications Failure Event is 

a Matched Seller, so long as such 

Clearing Member or Exercise Delegation 

Beneficiary notified LCH SA of 

occurrence of a Clearing Member 

Communications Failure Event or a 

CCM Client Communications Failure 

Event, then any Swaption Notices shall 

be delivered by LCH SA to such 

Clearing Member or Exercise Delegation 

Beneficiary (or, in respect of a CCM 

Client Cleared Transaction a Swaption 

Notice delivered by a CCM Client in 

accordance with Mandatory Provision 

5.7), as soon as reasonably practicable in 

accordance with the general notice 

provision in Section 8 of the 

Supplement. 

New Section 6.10 will further require 

a Clearing Member or Exercise 

Delegation Beneficiary affected by a 

Clearing Member Communications 

Failure Event (or, in respect of a CCM 

Client as Exercise Delegation 

Beneficiary, a CCM Client 

Communications Failure Event) to 

notify LCH SA of the occurrence of such 

event in the form set out in the 

Appendix of the Supplement and LCH 

SA will notify all Clearing Members and 

Exercise Delegation Beneficiaries 

accordingly. Similarly, a Clearing 

Member affected by a Clearing Member 

Communications Failure Event (or, in 

respect of a CCM Client as Exercise 

Delegation Beneficiary, a CCM Client 

Communications Failure Event) will be 

required to notify LCH SA as soon as 

reasonably practicable upon its ceasing 

to be subject to the Clearing Member 

Communications Failure Event (or, in 

respect of a CCM Client as Exercise 

Delegation Beneficiary, a CCM Client 

Communications Failure Event). After 

the notice of ceasing to be subject to a 

Clearing Member Communications 

Failure Event (or with respect to a CCM 

Client, a CCM Client Communications 

Failure Event), the requirement to effect 

Exercise or Abandonment through EEP 

will resume and apply and any 

Swaption Notice delivered or purported 

to be delivered thereafter by such 

Clearing Member or its Exercise 

Delegation Beneficiary (or CCM Client, 

as applicable) not via the EEP will not 

be valid or effective. 

Finally, new Section 6.10(e) will 

require a Clearing Member subject to a 

Clearing Member Communications 

Failure Event (or, in respect of a CCM 

Client as Exercise Delegation 

Beneficiary, a CCM Client 

Communications Failure Event in 

accordance with Mandatory Provision 

5.7) to use reasonable efforts to mitigate 

the operational impact on other Clearing 

Members and LCH SA of any Clearing 

Member Communications Failure Event 

(or, in respect of a CCM Client as 

Exercise Delegation Beneficiary, a CCM 

Client Communications Failure Event) 

and to cure such Clearing Member 

Communications Failure Event (or, in 

respect of a CCM Client as Exercise 

Delegation Beneficiary, a CCM Client 

Communications Failure Event) as soon 

as reasonably practicable and ensure 

that the circumstances giving rise to the 

relevant Clearing Member 

Communications Failure Event do not 

recur. 

Section 7 Settlement will be amended 

to make certain clean-up and 

conforming changes in order to ensure 

consistency. Specifically, Section 7.2 

will be amended to change the term 

‘‘Auction Settlement Date’’ to ‘‘Auction 

Final Price Determination Date’’ in 

order to correct an inaccurate reference 

in the current version of the 

Supplement. The Auction Final Price 

Determination Date refers to the date on 

which the Auction is held to determine 

the Auction Final Price used to compute 

the Auction Settlement in respect of an 

Initial Single Name Cleared Transaction 

and is defined in the 2014 ISDA Credit 

Derivatives Definitions, which are 

incorporated by reference pursuant to 


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Section 1.1 of the Supplement. Since 

Section 7.2 is designed to provide for 

creation of an Initial Single Named 

Cleared Transactions for settlement 

purposes in respect of a Credit Event 

other than an M(M)R Restructuring in 

circumstances where the ISDA would 

have held the Auction to determine the 

Auction Final Price prior to the 

Expiration Date, therefore the initial 

reference to ‘‘Auction Settlement Date’’ 

should have been ‘‘Auction Final Price 

Determination Date’’. Additionally, 

Section 7.2(b)(ii) will be amended to 

state that the Auction Settlement Date in 

respect of an Initial Single Name 

Cleared Transaction shall be the later of 

(a) the Auction Settlement Date that 

would be determined in accordance 

with Section 6.3 of the 2014 ISDA 

Credit Derivatives Definitions and (b) 

the first Transaction Business Day 

following the Expiration Date. 

Additionally, Section 7.3(b)(ii) will be 

amended to clarify that a valid Credit 

Event Notice must be delivered or 

deemed to be delivered in respect of a 

Restructuring Cleared Transaction for 

subsections (x) and (y) of Section 

7.3(b)(ii) to apply. Finally, changes will 

be made in Sections 7.3 and 7.4(a) to 

correct typographical errors without 

affecting the meanings of Sections 7.3 

and 7.4. 

Section 8 Delivery of Notices will be 

amended to add new provisions to 

implement the EEP, to remove 

inapplicable provisions, and to make 

certain clean-up and conforming 

changes. Specifically, Section 8.1(a) will 

be amended to conform to other new 

provisions added to Section 6 to 

account for the implementation of EEP, 

specifically, to specify the time at which 

a communication in respect of any 

Cleared Transaction will be recorded 

and deemed effective in EEP. Section 

8.1(b) will be amended to implement 

certain conforming changes regarding 

notices from or to LCH SA in EEP 

including with respect to the occurrence 

of an EEP Failure Event. Section 8.1(c) 

will be amended to account for 

electronic notification through EEP 

between Clearing Members or their 

respective Exercise Delegation 

Beneficiaries. 

Further, certain subsections of Section 

8 will be deleted, amended and/or 

renumbered. The existing Section 8.2, 

Oral Notices, will be moved and 

renumbered as a new Section 8.3 and 

the existing Section 8.3, Delivery of 

Exercise Notices, Abandonment Notices, 

Credit Event Notices and Notices to 

Exercise Movement Options, and the 

existing Section 8.4, Clearing Member 

Notices, will each be removed as these 

sections will no longer be applicable 

after the implementation of EEP. The 

existing Section 8.5 will be renumbered 

as a new Section 8.2 and certain 

conforming changes will be made in this 

Section to account for the delivery of 

the Protected Exercise Matched Pair 

Report and to describe the procedure 

with respect to a failure to notify 

Matched Pairs based on the occurrence 

of an EEP Failure Event. If LCH SA does 

not notify the relevant Clearing 

Members of Swaption Restructuring 

Matched Pairs and related information 

by the SRMP Notification Deadline or 

provide the Protected Exercise Matched 

Pair Report by the EMP Notification 

Deadline as a result of the occurrence of 

an EEP Failure, then the relevant 

Clearing Members or Exercise 

Delegation Beneficiary may deliver 

Swaption Notices to LCH SA and vice 

versa. The existing Section 8.6 will be 

renumbered as a new Section 8.4 and 

certain section references will be 

updated. 

Section 9, Matched Pair Designations, 

will be amended to update certain 

section references based on changes 

made to other sections of the 

Supplement. Specifically, in Section 

9.1(e)(i) and (ii), the references to 

Section 8.1 will be updated to Section 

9.1 and the reference to Section 7.7(a) in 

Section 9.6 will be updated to reference 

Section 5.7(a) and Section 6.5(c). 

Additionally, Sections 9.1(c) and (d) 

will be deleted to remove the 

requirement that, to the extent possible, 

each Swaption Restructuring Matched 

Pair and each Exercise Matched Pair 

will have an aggregate applicable 

Matched Pair amount which is an 

integral multiple of Euro 1,000,000 

subject to a maximum of Euro 

100,000,000. This change, which is 

unrelated to the implementation of EEP, 

is made to reflect that this condition 

with respect to the aggregate applicable 

Matched Pair amount is no longer 

required by LCH SA. 

Section 10, Mandatory Provisions for 

CCM Client Transactions, will be 

amended to replace the reference to 

Appendix VI with a reference to 

Appendix VIII based on changes to the 

numbering of the appendices to the 

Supplement. 

Section 12, Forms of Notices, will be 

amended to replace the reference to 

Section 7.11 with a reference to Section 

8.4. 

Section 13 Exclusion of Liability will 

be amended to add a new Section 13(b) 

which will provide that LCH SA will 

have no liability to a Clearing Member 

which has delegated to an Exercise 

Delegation Beneficiary its power to 

Exercise or Abandon Exercise Cleared 

Transactions for any loss, cost or 

expense arising out of any failure of 

such Exercise Delegation beneficiary to 

perform its obligations in relation with 

such delegation or in connection with or 

arising from the Exercise or 

Abandonment of an Exercise Cleared 

Transaction by the Exercise Delegation 

Beneficiary of the Clearing Member. 

Additionally, Section 13(d) will be 

amended to provide that LCH SA will 

have no responsibility to verify the 

contents of any notice received by it 

from any Clearing Member or from an 

Exercise Delegation Beneficiary of a 

Clearing Member under the terms of any 

Cleared Transaction. 

Appendix V: Form of Notice of 

Dispute Relating to Any Swaption 

Restructuring/Exercise Matched Pair 

will be amended to update each current 

reference to Section 7.11 to Section 8.4. 

A new Appendix VI: Form of Notice 

of Clearing Member Communications 

Failure Event Pursuant to Section 6.10 

(Clearing Member Communications 

Failure Event) or CCM Client 

Communications Failure Event Pursuant 

to Mandatory Provision 5.7 (CCM Client 

Communications Failure Event) will be 

added after existing Appendix V which 

will serve as the form to be used by a 

Clearing Member to notify LCH SA of a 

Clearing Member Communications 

Failure Event if required by Section 6.10 

of the Supplement or a CCM Client to 

notify LCH SA of a CCM Client 

Communications Failure Event in 

accordance with Mandatory Provision 

5.7(b). 

A new Appendix VII: Form of Notice 

for Ceasing to be Subject to a Clearing 

Member Communications Failure Event 

Pursuant to Section 6.10 (Clearing 

Member Communications Failure Event) 

or CCM Client Communications Failure 

Event Pursuant to Mandatory Provision 

5.7 (CCM Client Communications 

Failure Event) will be added after the 

new Appendix VI described in the 

preceding paragraph which will serve as 

the form to be used by a Clearing 

Member to notify LCH SA that such 

Clearing Member is no longer subject to 

a Clearing Member Communications 

Failure Event or for a CCM Client to 

notify LCH SA that such CCM Client is 

no longer subject to a CCM Client 

Communications Failure Event. 

The current Appendix VI: CCM Client 

Transaction Requirements will be 

renumbered to create a new Appendix 

VIII. Certain section references within 

such new Appendix VIII will be 

updated to conform with changes to the 

body of the Supplement and correct 

certain section references. Additionally, 

a new Section 5 to Appendix VIII 

entitled Designation of CCM Client by 

CCM for Exercise or Abandonment of 


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Exercise Cleared Transactions will be 

added after the current Section 4, 

Validity of Notices, to address the 

procedures for the Exercise or 

Abandonment of Exercise Cleared 

Transactions in the EEP. 

A new Section 5 to Appendix VIII 

entitled Designation of CCM Client by 

CCM for Exercise or Abandonment of 

Exercise Cleared Transactions will be 

added to address the procedures for 

designation by a CCM of the right to 

Exercise or Abandon an Exercise 

Cleared Transaction to a CCM Client. A 

new Section 5.1 entitled Designation by 

CCM will be added providing that CCM 

and CCM Client will agree that a CCM 

may designate the CCM Client as its 

Exercise Delegation Beneficiary with 

respect to a specific CCM Client Cleared 

Transaction for purposes of the Exercise 

or Abandonment of the CCM Client 

Cleared Transactions and receipt of 

Swaption Notices on its behalf. 

A new Section 5.2 to Appendix VIII 

entitled Exercise Notices and 

Abandonment Notices delivered in 

respect of CCM Client Cleared 

Transaction will be added which will 

provide that neither CCM nor CCM 

Client may deliver Swaption Notices in 

relation to the CCM Client Transaction 

corresponding to a CCM Client Cleared 

Transaction in respect of which CCM 

Client has been designated by CCM as 

its Exercise Delegation Beneficiary. 

Instead, if CCM Client as Exercise 

Delegation Beneficiary of the CCM 

delivers or receives a valid Swaption 

Notice in respect of the CCM Client 

Cleared Transaction corresponding to 

such CCM Client Transaction, such 

notice will also be deemed to be a valid 

Swaption Notice for the purposes of 

such CCM Client Transaction. 

A new Section 5.3 to Appendix VIII 

entitled Exercise and Abandonment by 

way of EEP will be added which will 

provide that any submission of an 

Option Intent by a CCM Client in 

respect of a CCM Client Cleared 

Transaction in respect of which such 

CCM Client has been designated as 

Exercise Delegation Beneficiary will be 

made via its Client Portal Account in 

the EEP. If (a) the CCM Client submits 

an Option Intent via its Client Portal 

Account, (b) the Option Intent is 

submitted by a CCM Client prior to 4.00 

p.m. (London time) on the Expiration 

Date and (c) LCH SA has completed 

those steps necessary to make such 

Option Intent available for viewing in 

the EEP, such submission will be 

deemed to constitute delivery by the 

CCM of a valid Exercise Notice or 

Abandonment Notice in respect of the 

CCM Client Cleared Transactions. The 

deemed time of delivery of such 

Swaption Notice will be the time 

specified by the EEP and the registration 

will be irrevocable. 

A new Section 5.4 to Appendix VIII 

entitled Consequences of EEP Failure 

will be added to address the procedures 

in the event that an EEP Failure Event 

occurs from (and including) the EEP 

Failure Event Time to (but excluding) 

the EEP Resolution Time. A new 

Section 5.4(a) will be added to provide 

that a CCM Client will deliver Swaption 

Notices directly to the matched Seller or 

its relevant Exercise Delegation 

Beneficiary (with a copy to the Matched 

Seller) using the notice details provided 

by LCH SA instead of delivering the 

Swaption Notice via EEP. A new 

Section 5.4(b) will be added to specify 

that, if LCH SA does not provide the 

Protected Exercise Matched Pair Report 

by the EMP Notification Deadline or, 

where an EEP Failure Event occurs after 

the EMP Notification Deadline, from the 

time of such EEP Failure Event until 

such time as LCH provides the Protected 

Exercise Matched Pair Report, CCM 

Client will deliver Swaption Notices to 

LCH SA on behalf of the CCM instead 

of to the Matched Seller (or its Exercise 

Delegation Beneficiary). A new Section 

5.4(c) will be added which will provide 

that any notice delivered via the EEP 

prior to the EEP Failure Event Time will 

be valid and will not be affected by such 

EEP Failure Event. Finally, a new 

Section 5.4(d) will be added to specify 

that any notice delivered or purported 

to be delivered via the EEP at or 

following the EEP Failure Event Time 

but prior to the EEP Resolution Time 

will not be valid and effective. 

A new Section 5.5 to Appendix VIII 

entitled Duty to Deliver Swaption CCM 

Client Notice will be added to specify 

that the CCM Client must notify LCH SA 

and its CCM of any Swaption Notice 

delivered by it in accordance with new 

Section 5.4 which such CCM Client 

asserts was effective by no later than 

5.00 p.m. on the Expiration Date (the 

‘‘Swaption CCM Client Notice 

Deadline’’). If no such notice is 

delivered by CCM Client or the CCM 

prior to the Swaption CCM Client 

Notice Deadline, any Exercise Notice 

sent by CCM Client pursuant to new 

Section 5.4 will be deemed to be 

invalid. However, if LCH SA elects to 

give effect to an Exercise Notice in 

respect of a Swaption CCM Client 

Notice that it determines has been 

delivered pursuant to Section 6.8 of the 

Supplement, then such provisions shall 

apply as if LCH SA had received a 

Swaption CCM Client Notice in respect 

of the relevant Exercise Notice by the 

Swaption CCM Client Notice Deadline, 

and, if LCH SA determines that it is not 

possible to give effect to the terms of 

any such Exercise Notice then the 

relevant Clearing Members or their 

Exercise Delegation Beneficiaries will 

acquire rights as against each other as 

though party to a bilateral credit default 

swap transaction on the terms of the 

Underlying Index Transaction. The 

Settlement Payment will be due and 

payable two Transaction Business Days 

following the giving of a notice that 

such amount is due and payable and the 

relevant Clearing Members or their 

Exercise Delegation Beneficiaries will 

have enforcement rights as against each 

other pursuant to the Contracts (Rights 

of Third Parties) Act 1999 in respect of 

any resulting payments and deliveries; 

LCH SA shall have no liability in 

respect thereof. 

A new Section 5.6 to Appendix VIII 

entitled Delivery of Notices to and from 

LCH SA in Case of EEP Failure Event 

will be added to specify that upon the 

occurrence of an EEP Failure Event, 

notices and communications given by 

LCH SA to the CCM Client or vice versa 

will be given to the address or number 

provided by the CCM Client to LCH SA 

and vice versa upon registration or any 

other address or number duly notified 

thereafter. 

A new Section 5.7 to Appendix VIII 

entitled Communications Failure Event 

will be added to address the procedure 

for notifying LCH SA of a 

Communications Failure Event, the 

procedures for delivery of Notices 

following such Communications Failure 

Event and the procedures for notifying 

LCH SA of a resolution of such 

Communications Failure Event. 

Subsection (a) of new Section 5.7 will 

permit a CCM Client affected by a 

Communications Failure Event to 

deliver Swaption Notices manually with 

a Submission Time prior to 4:00 p.m. 

(London time). However, LCH SA may 

determine in its sole discretion that it is 

not able to submit the relevant Option 

Intent in the relevant system with a 

Submission Time prior to 4:00 p.m. 

(London time) on the Expiration Date in 

which case LCH SA will inform the 

CCM Client and, subject to Mandatory 

Provision 5.5, such CCM Client will be 

deemed not to have submitted an 

Option Intent in respect of the relevant 

Exercise Cleared Transaction. 

Subsection (b) of new Section 5.7 will 

require the CCM Client to provide 

written notice (or notice by telephone if 

CCM Client is unable to deliver written 

notice) to LCH SA certifying that it is 

affected by a Communications Failure 

Event. Subsection (c) of new Section 5.7 

will require CCM Client to notify LCH 

SA upon the resolution of any 

Communications Failure Event. 


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4 15 U.S.C. 78q–1. 

5 17 CFR 240.17Ad–22. 

6 15 U.S.C. 78q–1(b)(3)(F). 

Additionally, pursuant to subsection (d) 

of new Section 5.7, the CCM Client that 

is subject to a Communications Failure 

Event must use reasonable endeavors to 

mitigate the operational impact of any 

Communications Failure Event, to cure 

such Communications Failure Event as 

soon as reasonably practicable and to 

ensure that the events giving rise thereto 

do not recur. 

A new Section 5.8 to Appendix VIII 

entitled Confidentiality Waiver will be 

added stating that the CCM Client 

consents to the disclosure of its address, 

fax number, telephone number, contact 

email address (and any other applicable 

notice details provided by it) by CCM to 

LCH SA and by LCH SA in any 

Protected Exercise Matched Pair Report. 

The current Section 5, Determination 

of Credit Events and Succession Events, 

will be renumbered as a new Section 6. 

The current Section 6, Timings for the 

Delivery of Notices for CCM Client 

Transactions, will be renumbered as a 

new Section 7. The current Section 7, 

Timings for the Delivery of Exercise 

Notices for CCM Client Transactions, 

will be deleted as it has been replaced 

with the new Section 5 described in the 

preceding paragraphs. 

The amendments to the CDS Clearing 

Supplement also contain typographical 

corrections and similar technical 

corrections and clarifications as well as 

various conforming references to the 

new or revised defined terms. Finally, 

corresponding changes to provision 

numbering throughout the CDS Clearing 

Supplement have been made as 

necessary. 

(iii) CDS Clearing Procedures 

LCH SA also proposes to modify 

Section 5 of the Procedures to 

incorporate terms for implementing the 

new EEP, to remove inapplicable 

provisions after implementation of the 

EEP, and to make certain conforming 

and clean-up changes to improve clarity 

of the Supplement. 

Specifically, a definition of ‘‘LCH 

Portal’’ will be added to Section 5.3(f) 

to define the LCH Portal as a single signon solution for various LCH SA 

applications to which Clearing Members 

may have access over secured internet. 

Further Section 5.16 will be revised to 

add a new paragraph entitling a Clearing 

Member to request that all or part of the 

reports provided under Section 5.16 be 

made available on the Client Portal 

Account. This new paragraph will 

additionally define the Client Portal 

Account as the account created by a 

Client on the LCH Portal. Section 

5.16(a)(i)(J) will be amended to replace 

all references to ‘‘Cleared Transaction 

Exercise Report’’ with ‘‘Protected 

Exercise Matched Pairs Report’’ to 

reflect the new reporting structure in 

EEP, and to specify that the timing for 

the Protected Exercise Matched Pairs 

Report to be prepared will be three 

Business Days prior to the Exercise Date 

and such report will only be made 

accessible following the occurrence of 

an EEP Failure Event. The current 

Section 5.16(c)(ii), Open Interest Report, 

will be deleted as it no longer applies. 

Current Section 5.16(c)(iii) will be 

renumbered as a new Section 5.16(c)(ii) 

and current Section 5.16(c)(iv) will be 

renumbered as a new Section 

5.16(c)(iii). 

A new Section 5.19 entitled 

Delegation of Exercise of Exercise 

Cleared Transactions and Electronic 

Exercise Platform will be added after the 

current Section 5.18 to address the 

procedures for delegation of the 

Exercise or Abandonment of Index 

Swaption Cleared Transactions and the 

Electronic Exercise Platform. A new 

Section 5.19.1 entitled Delegation of 

Exercise or Abandonment of Exercise 

Cleared Transactions will be added to 

provide that any Clearing Member 

which has delegated to a Client the 

power to Exercise and/or Abandon all or 

part of its Exercise Cleared Transactions 

will notify such delegation to LCH SA 

by sending a completed and signed 

notification form to LCH SA via email. 

Upon receipt, LCH SA will ensure that 

only such delegate is authorized to 

Exercise or Abandon the Exercise 

Cleared Transactions identified in such 

form. Any withdraw of an exercise 

Delegation shall be notified to LCH SA 

by sending a copy of an updated and 

signed Exercise Delegation form by 

email to LCH SA. LCH SA will process 

Exercise Delegations and Exercise 

Delegation Withdrawals as soon as 

reasonably practicable. 

A new Section 5.19.2 entitled 

Electronic Exercise of Exercise Cleared 

Transactions will be added to describe 

the process for the electronic Exercise of 

Exercise Cleared Transactions. Upon a 

submission of an Option Intent in the 

EEP, LCH SA will carry out logicality 

controls in respect of such Option Intent 

in order to help Clearing Members and 

Exercise Delegation Beneficiaries 

identify an Option Intent which could 

have been submitted in the EEP in error 

based on the relative position or the 

price of Exercise compared to reference 

prices provided in the EEP. Any Option 

Intent which does not pass such 

logicality controls will not be registered 

in the EEP and LCH SA will inform the 

applicable Clearing Member. The 

Clearing Member and its Exercise 

Beneficiaries may elect to bypass the 

logicality controls by specifying 

‘‘Confirm’’ or ‘‘Force’’ in relation to the 

Option Intent when submitting such 

Option Intent (‘‘Force Submission’’). 

LCH SA will inform the applicable 

Clearing Member or Exercise Delegation 

Beneficiary if an Option Intent is 

deemed illogical and the Clearing 

Member or Exercise Delegation 

Beneficiary may then choose to resubmit such Option Intent and Force 

Submission. LCH SA will not carry out 

logicality controls on such Option 

Intent. Before registering any Option 

Intent LCH SA will ensure that such 

Option Intent (i) is submitted by a user 

who (a) is connected with the proper 

user ID and password and (b) based on 

such ID and password, is duly 

authorized to Exercise or Abandon, as 

applicable, the relevant Exercise Cleared 

Transactions; (ii) has not already been 

submitted in the EEP in respect of the 

relevant Exercise Cleared Transaction 

(other than a partial Exercise); and (iii) 

passes the logicality controls or the 

relevant Clearing Member or Exercise 

Delegation Beneficiary has Forced 

Submission as described earlier in this 

new Section 5.19.2. LCH SA will not be 

required to carry out any further control. 

The amendments to the CDS Clearing 

Procedures also contain typographical 

corrections and similar technical 

corrections and clarifications as well as 

various conforming references to the 

new or revised defined terms. Finally, 

corresponding changes to provision 

numbering throughout the CDS Clearing 

Procedures have been made as 

necessary. 

2. Statutory Basis 

LCH SA believes that the proposed 

rule change in connection with the 

launch of EEP is consistent with the 

requirements of Section 17A of the 

Securities Exchange Act of 1934 4 (the 

‘‘Act’’) and the regulations thereunder, 

including the standards under Rule 

17Ad–22.5 Section 17(A)(b)(3)(F) 6 of the 

Act requires, among other things, that 

the rules of a clearing agency be 

designed to promote the prompt and 

accurate clearance and settlement of 

securities transactions and derivative 

agreements, contracts, and transactions 

and to assure the safeguarding of 

securities and funds which are in the 

custody or control of the clearing agency 

or for which it is responsible. As noted 

above, the proposed rule change is 

designed to implement an automated 

electronic platform to facilitate the 

transmission and execution of exercise 

decisions by Clearing Members and 


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Federal Register / Vol. 83, No. 172 / Wednesday, September 5, 2018 / Notices 45163 

7 17 CFR 240.17Ad–22(e)(17). 

8 17 CFR 240.17Ad–22(e)(17). 

9 17 CFR 242.1000–1007. 

10 17 CFR 242.1001(a). 

11 17 CFR 242.1001(b). 

12 17 CFR 242.1001(a)–(b). 

13 15 U.S.C. 78q–1(b)(3)(F). 

their Clients, which will replace the 

existing manual notification process and 

reduce operational risk arising from the 

current process. Specifically, the EEP 

will enable Clearing Members and 

Clients to capture in real time their 

option exercise decisions, and EEP will 

notify the relevant option sellers in real 

time, thereby promoting prompt and 

accurate option exercise process 

including the clearing and settlement of 

the ensuing index credit default swap 

transactions and the termination of the 

index option transactions. 

Further, LCH SA believes that the 

proposed changes to the Rule Book, 

Supplement and Procedures are 

consistent with requirements of Rule 

17Ad–22(e)(17).7 Rule 17Ad–22(e)(17) 

requires a covered clearing agency to 

manage operational risks by (i) 

identifying the plausible sources of 

operational risk, both internal and 

external, and mitigating their impact 

through the use of appropriate systems, 

policies, procedures, and controls; (ii) 

ensuring that systems have a high 

degree of security, resiliency, 

operational reliability, and adequate, 

scalable capacity; and (iii) establishing 

and maintaining a business continuity 

plan that addresses events posing a 

significant risk of disrupting 

operations.8

As described above, the proposed rule 

change will enable LCH SA to more 

effectively manage the operational risks 

associated with the option exercise 

process by providing a safe, secure and 

resilient technological solution. 

Specifically, the current manual 

bilateral notification process creates 

plausible operational risks if LCH SA is 

not notified or provided a copy of the 

notification. To address the limitations 

of the manual bilateral notification 

process, the proposed rule change is 

designed to implement the EEP which 

captures option exercise decisions in 

real time while ensuring that LCH SA is 

not exposed to any principal risk upon 

the transmission of an exercise intent 

decision, or upon a related technical 

failure. As described above, acceptance 

of timely Option Intent from an option 

buyer will be conditioned within the 

EEP upon EEP’s successful validation 

checks. If the Option Intent did not pass 

the validation checks, the EEP will 

reject the initial Option Intent submitted 

by the option buyer on a timely basis so 

the option buyer will be able to either 

resubmit the option exercise intent 

through EEP or rely on the existing 

manual exercise process, thereby 

ensuring that the option buyer can 

exercise its trade in time. On the other 

hand, if the Option Intent is delivered 

before the exercise deadline and passes 

the EEP validation checks, the swaption 

notice will be deemed legally delivered 

by LCH SA to the option seller on a real 

time basis with respect to the seller side 

of the transaction. Therefore, in no 

event would LCH SA be deemed as not 

having exercised the option with the 

Matched Seller if the Matched Buyer 

timely delivers its Option Intent and 

such Option Intent is validated by the 

EEP. This structural design and 

workflow mirrors what currently exists 

regarding the delivery of restructuring 

credit event notices. Further, as 

described above, LCH SA will 

implement validation checks on 

received Option Intents, including 

illogical intent checks to limit ’fatfinger’ errors, before applying and 

registering the intents in the system. 

The new option exercise process using 

EEP will preserve the counterparty 

anonymity. In addition, recognizing the 

criticality of the exercise/expiry process, 

LCH SA will have well defined 

contingency procedures in place to 

address any EEP failure or any Clearing 

Member technological issues resulting 

in Clearing Members’ communications 

failures. The existing manual process 

remains a fallback in the event of an 

EEP failure or a Clearing Member 

communications failure in order to 

ensure that the entire option exercise 

systems have a high degree of security, 

resiliency, operational reliability, and 

adequate, scalable capacity. 

Finally, the EEP will be an integral 

part of the clearing systems with respect 

to swaptions cleared by LCH SA and 

therefore, an SCI system within the 

meaning of Regulation SCI.9 Rule 

1001(a) requires an SCI entity, which 

includes a registered clearing agency, to 

establish, maintain, and enforce written 

policies and procedures reasonably 

designed to ensure that its SCI systems 

and, for purposes of security standards, 

indirect SCI systems, have levels of 

capacity, integrity, resiliency, 

availability, and security, adequate to 

maintain the SCI entity’s operational 

capability and promote the maintenance 

of fair and orderly markets.10 Rule 

1001(b) require an SCI entity, which 

includes a registered clearing agency, to 

establish, maintain, and enforce written 

policies and procedures reasonably 

designed to ensure that its SCI systems 

operate in a manner that complies with 

the Act and the rules and regulations 

thereunder and the SCI entity’s rules 

and governing documents, as 

applicable.11

LCH SA believes that the proposed 

rule change is consistent with the 

requirements of Regulation SCI. First, 

the proposed rule change does not 

amend the existing policies and 

procedures reasonably designed to 

comply with the Regulation SCI 

requirements, including the 

requirements in Rule 1001(a) and (b).12

LCH SA will include the EEP in its SCI 

systems and administer the EEP in 

accordance with and consistent with the 

existing policies and procedures 

designed to comply with Regulation 

SCI. For example, LCH SA currently has 

its Business Continuity Management 

program in place to enable CDSClear to 

provide continuity and timely recovery 

of business operations in the event of a 

major incident or crisis, which impacts 

or has the potential to impact business 

functions. The proposed rule change 

does not amend any details of LCH SA’s 

ability to recover its technical 

infrastructure in its Disaster Recovery 

Plan. However, recognizing the use of 

EEP as the principal form of option 

exercise mechanism, the proposed rule 

change, as described above, will include 

fallback processes in the event of an EEP 

Failure Event or a Clearing Member 

Communications Failure Event and will 

clearly specify when such failure ceases 

to exist and the requirement to resume 

the usage of EEP. As detailed above, in 

the event of the EEP failing, the option 

exercise process would revert to the 

existing bilateral notification process via 

email or messaging. Accordingly, LCH 

SA believes that the proposed rule 

change, when implemented with the 

existing policies and procedures 

designed to comply with Regulation 

SCI, is appropriately designed to ensure 

the EEP will have levels of capacity, 

integrity, resiliency, availability, and 

security, adequate to maintain 

CDSClear’s operational capability for 

option exercise and to ensure that the 

EEP will operate in a manner that 

complies with the Act and the rules and 

regulations thereunder, as well as LCH 

SA’s rules and governing documents. 

For the reasons stated above, LCH SA 

believes that the proposed rule change 

with respect to the Rule Book, 

Supplement and Procedures in 

connection with the launch of the EEP 

are consistent with the requirements of 

prompt and accurate clearance and 

settlement of securities transactions in 

Section 17(A)(b)(3)(F) 13 of the Act, the 


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45164 Federal Register / Vol. 83, No. 172 / Wednesday, September 5, 2018 / Notices 

14 17 CFR 240.17Ad–22(e)(17). 

15 17 CFR 242.1000–1007. 

16 15 U.S.C. 78q–1(b)(3)(I). 17 17 CFR 200.30–3(a)(12). 

requirements of operational risk 

management in Rule 17Ad–22(e)(17) 14

and the requirements of Regulation 

SCI.15

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.16 LCH SA does not 

believe that the proposed rule change 

would impose burdens on competition 

that are not necessary or appropriate in 

furtherance of the purposes of the Act. 

Specifically, the proposed changes to 

the Rule Book, Supplement and 

Procedures would apply equally to all 

Clearing Members and their Clients are 

Matched Buyers and Matched Sellers. 

All Clearing Members and their 

designated Clients who are Exercise 

Delegation Beneficiaries will be 

required to use EEP to exercise Exercise 

Cleared Transactions. The proposed rule 

change and implementation of EEP will 

require Clearing Members and their 

Clients to connect to LCH SA’s systems 

through opening a portal account and 

therefore, may impose burdens on 

Clearing Members and their Clients but 

such burdens would be necessary and 

appropriate to manage LCH SA’s 

operational risks and to implement an 

automated electronic system to capture 

all exercises of Option Intents. 

Therefore, LCH SA does not believe that 

the proposed rule change would impose 

a burden on competition not necessary 

or appropriate in furtherance of the 

purposes of the Act. 

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 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the self-regulatory organization 

consents, the Commission will: 

(A) By order approve or disapprove 

such proposed rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

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 rule-comments@

sec.gov. Please include File Number SR– 

LCH SA–2018–004 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–2018–004. 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–2018–004 and 

should be submitted on or before 

September 26, 2018. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.17

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–19147 Filed 9–4–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

Sunshine Act Meetings 

TIME AND DATE: 2:00 p.m. on Thursday, 

September 6, 2018. 

PLACE: Closed Commission Hearing 

Room 10800. 

STATUS: This meeting will be closed to 

the public. 

MATTERS TO BE CONSIDERED: 

Commissioners, Counsel to the 

Commissioners, the Secretary to the 

Commission, and recording secretaries 

will attend the closed meeting. Certain 

staff members who have an interest in 

the matters also may be present. 

The General Counsel of the 

Commission, or his designee, has 

certified that, in his opinion, one or 

more of the exemptions set forth in 5 

U.S.C. 552b(c)(3), (5), (6), (7), (8), 9(B) 

and (10) and 17 CFR 200.402(a)(3), 

(a)(5), (a)(6), (a)(7), (a)(8), (a)(9)(ii) and 

(a)(10), permit consideration of the 

scheduled matters at the closed meeting. 

Commissioner Jackson, as duty 

officer, voted to consider the items 

listed for the closed meeting in closed 

session. 

The subject matters of the closed 

meeting will be: 

Institution and settlement of 

injunctive actions; 

Institution and settlement of 

administrative proceedings; 

Resolution of litigation claims; and 

Other matters relating to enforcement 

proceedings. 

At times, changes in Commission 

priorities require alterations in the 

scheduling of meeting items. 

CONTACT PERSON FOR MORE INFORMATION: 

For further information and to ascertain 

what, if any, matters have been added, 

deleted or postponed; please contact 

Brent J. Fields from the Office of the 

Secretary at (202) 551–5400. 


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