45152 Federal Register / Vol. 83, No. 172 / Wednesday, September 5, 2018 / Notices 

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. 

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

4 17 CFR 240.19b–4(f)(2). 

5The Nasdaq Stock Market LLC (‘‘Nasdaq’’), for 

example, operates a program whereby it charges 

Distributors that employ a hosted display solution 

to distribute Derived Data taken from its Nasdaq 

Basic product. See Securities Exchange Act Release 

No. 79228 (November 3, 2016), 81 FR 78890 

(November 9, 2016) (SR–NASDAQ–2016–144). 

purchase is not justified by the returns 

any particular vendor or subscriber 

would achieve through the purchase. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were either 

solicited or received. 

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– 

CboeBZX–2018–065 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–CboeBZX–2018–065. 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–CboeBZX–2018–065 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. 2018–19240 Filed 9–4–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–84000; File No. SR– 

CboeEDGX–2018–036] 

Self-Regulatory Organizations; Cboe 

EDGX Exchange, Inc.; Notice of Filing 

and Immediate Effectiveness of a 

Proposed Rule Change Related to Fees 

for Use on Cboe EDGX Exchange, Inc. 

August 30, 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 August 

16, 2018, Cboe EDGX Exchange, Inc. 

(the ‘‘Exchange’’ or ‘‘EDGX’’) 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 fee schedule to institute a new 

fee for the distribution of data derived 

from EDGX Top on third-party websites 

or other electronic platforms. 

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 purpose of the proposed rule 

change is to introduce a new pricing 

model to keep pace with an evolving 

practice. Other exchanges have pricing 

programs in place that allow 

Distributors make ‘‘Derived Data’’ 

available on a website or other 

electronic platform that is branded by a 

third party, or co-branded by a 

Distributor and a third party.5 The 

proposed rule change would implement 

a new pricing structure for use of 

Derived Data—i.e., the EDGX Derived 

Data White Label Service Program (the 

‘‘Program’’)—that would compete with 

similar programs currently offered on 

other equities markets. 

‘‘Derived Data’’ is pricing data or 

other data that (i) is created in whole or 

in part from Exchange Data, (ii) is not 


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6See Rule 13.8(c). 

7A swap is a derivative contract in which two 

parties agree to exchange financial instruments. 

8A swaption, or swap option, is an option to 

enter into a swap at a specified time. 

9A contract for difference is an agreement to 

exchange the difference between the current value 

of an asset and its future value. If the price 

increases, the seller pays the buyer the amount of 

the increase. If the price decreases, the buyer pays 

the seller the amount of the decrease. 

10 15 U.S.C. 78f. 

11 15 U.S.C. 78f(b)(4). 

12 15 U.S.C. 78k–1. 

13See 17 CFR 242.603. 

14The Exchange believes that cost-based pricing 

would be impractical because it would create 

enormous administrative burdens for all parties, 

including the Commission, to cost-regulate a large 

number of participants and standardize and analyze 

extraordinary amounts of information, accounts, 

and reports. In addition, it is impossible to regulate 

market data prices in isolation from prices charged 

by markets for other services that are joint products. 

Cost-based rate regulation would also lead to 

litigation and may distort incentives, including 

those to minimize costs and to innovate, leading to 

further waste. Under cost-based pricing, the 

Commission would be burdened with determining 

a fair rate of return, and the industry could 

experience frequent rate increases based on 

escalating expense levels. Even in industries 

historically subject to utility regulation, cost-based 

ratemaking has been discredited. As such, the 

Exchange believes that cost-based ratemaking 

would be inappropriate for proprietary market data 

and inconsistent with Congress’s direction that the 

Commission use its authority to foster the 

development of the national market system, and 

that market forces will continue to provide 

appropriate pricing discipline. See Appendix C to 

NYSE’s comments to the Commission’s 2000 

Concept Release on the Regulation of Market 

Information Fees and Revenues, which can be 

found on the Commission’s website at http://

www.sec.gov/rules/concept/s72899/buck1.htm. See 

also Securities Exchange Act Release No. 73816 

(December 11, 2014), 79 FR 75200 (December 17, 

2014) (SR–NYSE–2014–64) (Notice of Filing and 

Immediate Effectiveness of Proposed Rule Change 

to Establish an Access Fee for the NYSE Best Quote 

and Trades Data Feed, Operative December 1, 

2014). 

an index or financial product, and (iii) 

cannot be readily reverse-engineered to 

recreate Exchange Data or used to create 

other data that is a reasonable facsimile 

or substitute for Exchange Data. The 

type of Derived Data subject to the 

proposed fee is taken from EDGX Top, 

which is a proprietary data product that 

provides top of book quotations and 

execution information for all equity 

securities traded on the Exchange.6

The Derived Data subject to the 

proposed fee is made available to 

subscribers within a White Label 

Service which is a type of hosted 

display solution in which a Distributor 

hosts or maintains a website or platform 

on behalf of a third-party entity. The 

service allows Distributors to make 

Derived Data available on a platform 

that is branded with a third-party brand, 

or co-branded with a third party and a 

Distributor. The Distributor maintains 

control of the application’s data, 

entitlements and display. 

The White Label Service may be used 

for a number of different purposes, to be 

determined by the Distributor. Possible 

uses include the display of information 

or data, or the creation of derivative 

instruments, such as swaps,7

swaptions,8 or contracts for difference.9

The specific use of the data will be 

determined by the Distributor, as the 

proposed fee will not depend on the 

purpose for placing the Derived Data on 

a White Label Service. 

As proposed, a Distributor that 

provides a White Label Service for 

Derived Data taken from EDGX Top is 

liable for the following fees instead of 

the fees normally applicable for the 

distribution of EDGX Top. First, instead 

of the regular fee for external 

distribution, Distributors would be 

charged a tiered External Subscriber Fee 

based on the number of White Label 

Service Platforms (i.e., ‘‘External 

Subscribers’’) that receive Derived Data 

from the Distributor through a White 

Label Service. Specifically, Distributors 

would be charged a fee of: (1) $300 per 

month for each External Subscriber if 

the Distributor makes Derived Data 

available to 1–5 External Subscribers; 

(2) $250 per month for each External 

Subscriber if the Distributor makes 

Derived Data available to 6–10 External 

Subscribers; and (3) $200 per month for 

each External Subscriber if the 

Distributor makes Derived Data 

available to 11 or more External 

Subscribers. The External Subscriber 

Fee is non-progressive and, as 

mentioned above, is based on the 

number of External Subscribers that 

receive Derived Data from the 

Distributor. For example, a Distributor 

providing Derived Data based on EDGX 

Top to six External Subscribers would 

be charged a monthly fee of $1,500 (i.e., 

6 External Subscribers × $250 each). 

Second, the Exchange would charge a 

monthly Professional User fee of $4 per 

month for each Professional User, which 

is equivalent to the current Professional 

User fee for external distribution of 

EDGX Top. There would be no monthly 

Non-Professional User fee for accessing 

Derived Data through a White Label 

Service. 

The Program is entirely optional, in 

that it applies only to Distributors that 

opt to use Derived Data from EDGX Top 

to create a White Label Service, as 

described herein. It does not impact or 

raise the cost of any other Exchange 

product, nor does it affect the cost of 

EDGX Top, except in instances where 

Derived Data is made available on a 

White Label Service. A Distributor that 

provides a White Label Service for 

EDGX Top data that is not Derived Data 

or distributes Derived Data through a 

platform other than a White Label 

Service would be liable for the fees 

normally applicable for the distribution 

of EDGX Top. 

2. Statutory Basis 

The Exchange believes that the 

proposed rule change is consistent with 

the objectives of Section 6 of the Act,10

in general, and furthers the objectives of 

Section 6(b)(4),11 in particular, as it is 

designed to provide for the equitable 

allocation of reasonable dues, fees and 

other charges among its members and 

other recipients of Exchange data. The 

Exchange believes that the proposed 

rates are equitable and nondiscriminatory in that they apply 

uniformly to all recipients of Exchange 

data. The Exchange believes the 

proposed fees are competitive with 

those charged by other venues and, 

therefore, reasonable and equitably 

allocated to recipients. 

The Exchange also believes that the 

proposed rule change is consistent with 

Section 11(A) of the Act 12 in that it 

supports (i) fair competition among 

brokers and dealers, among exchange 

markets, and between exchange markets 

and markets other than exchange 

markets and (ii) the availability to 

brokers, dealers, and investors of 

information with respect to quotations 

for and transactions in securities. 

Furthermore, the proposed rule change 

is consistent with Rule 603 of 

Regulation NMS,13 which provides that 

any national securities exchange that 

distributes information with respect to 

quotations for or transactions in an NMS 

stock do so on terms that are not 

unreasonably discriminatory. In 

adopting Regulation NMS, the 

Commission granted self-regulatory 

organizations and broker-dealers 

increased authority and flexibility to 

offer new and unique market data to the 

public. It was believed that this 

authority would expand the amount of 

data available to consumers, and also 

spur innovation and competition for the 

provision of market data. 

The Exchange notes that the 

Commission is not required to 

undertake a cost-of-service or ratemaking approach. The Exchange 

believes that, even if it were possible as 

a matter of economic theory, cost-based 

pricing for non-core market data would 

be so complicated that it could not be 

done practically.14

The Exchange believes that the 

introduction of a fee for the use of 

Derived Data on White Label Services is 


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45154 Federal Register / Vol. 83, No. 172 / Wednesday, September 5, 2018 / Notices 

15See supra note 5. 

16 Id. 

reasonable because: (i) All proprietary 

data fees are constrained by the 

Exchange’s need to compete for order 

flow; and (ii) proprietary data fees are 

subject to market competition from 

substitute products. The proposed rule 

change would provide an alternate fee 

structure for providing EDGX Top 

market data to Distributors that make 

Derived Data available to External 

Subscribers on White Label Services. 

The Exchange believes that this will 

encourage additional Distributors to 

subscribe to EDGX Top market data due 

to the lower cost associated with 

Derived Data provided under the 

Program. Nasdaq already has a similar 

pricing structure in place for providing 

Derived Data through a hosted display 

solution.15 The Exchange believes that 

Distributors of EDGX Top market data 

would benefit from a similar solution. 

Furthermore, the proposed fees are 

lower than those currently in place on 

Nasdaq, which charges a fee of $400 per 

month for each hosted display solution 

under their program,16 and may be 

further lowered for Distributors of EDGX 

Top Derived Data based on the number 

of External Subscribers. 

As proposed, if a Distributor uses a 

White Label Service to display Derived 

Data, the Distributor will be charged a 

fee that is tiered based on the number 

of External Subscribers that are 

provided access to that data instead of 

the higher fee normally charged for 

external distribution. The Exchange 

believes that this fee is equitable and 

not unfairly discriminatory because the 

Exchange will apply the same fees to all 

similarly situated Distributors based on 

the number of External Subscribers 

provided access to Derived Data through 

a White Label Service. Furthermore, the 

proposed fees will only apply to 

Distributors that elect to participate in 

the Program by distributing Derived 

Data through a White Label Service. 

EDGX Top market data is distributed 

and purchased on a voluntary basis, in 

that neither the Exchange nor market 

data distributors are required by any 

rule or regulation to make this data 

available. Distributors of EDGX Top are 

not required to participate in the 

proposed Program, which is merely an 

alternative option being proposed by the 

Exchange to potentially lower costs for 

market data that is Derived Data. 

Accordingly, Distributors can 

discontinue use at any time and for any 

reason, including due to an assessment 

of the reasonableness of fees charged. 

Firms have a wide variety of alternative 

market data products from which to 

choose, such as similar proprietary data 

products offered by other exchanges and 

consolidated data. Moreover, the 

Exchange is not required to make any 

proprietary data products available or to 

offer any specific pricing alternatives to 

any customers. 

In addition to the tiered distribution 

fee described above, the Exchange will 

continue to charge a small fee for 

Professional Users but would eliminate 

Non-Professional User fees for data 

provided under the Program. The 

Exchange believes that it is equitable 

and not unfairly discriminatory to 

charge a fee for Professional Users but 

no fee for Non-Professional Users. NonProfessional Users are already subject to 

a heavily discounted fee for EDGX Top 

market data relative to Professional 

Users. Differential fees for Professional 

and Non-Professional Users are widely 

used by the Exchange and other 

exchanges for their proprietary market 

data as this reduces costs for retail 

investors and makes market data more 

broadly available. 

In addition, the fees that are the 

subject of this rule filing are constrained 

by competition. As explained below in 

the Exchange’s Statement on Burden on 

Competition, the existence of 

alternatives to the proposed program 

further ensures that the Exchange 

cannot set unreasonable fees, or fees 

that are unreasonably discriminatory, 

when subscribers can elect such 

alternatives. That is, the Exchange 

competes with other exchanges and 

their affiliates that provide similar 

market data products. If another 

exchange or its affiliate were to charge 

less for a similar product than the 

Exchange charges under the proposed 

fee structure, prospective subscribers 

likely would not subscribe to, or would 

cease subscribing to, the Program. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will result in 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act, as amended. 

The Exchange’s ability to price this data 

product is constrained by: (i) 

Competition among exchanges, other 

trading platforms, and Trade Reporting 

Facilities (‘‘TRF’’) that compete with 

each other in a variety of dimensions; 

(ii) the existence of inexpensive realtime consolidated data and marketspecific data and free delayed data; and 

(iii) the inherent contestability of the 

market for proprietary data. 

The Exchange and its market data 

products are subject to significant 

competitive forces and the proposed 

fees represent responses to that 

competition. To start, the Exchange 

competes intensely for order flow. It 

competes with the other national 

securities exchanges that currently trade 

equities, with electronic communication 

networks, with quotes posted in 

FINRA’s Alternative Display Facility, 

with alternative trading systems, and 

with securities firms that primarily 

trade as principal with their customer 

order flow. 

The proposed fees apply to data 

derived from EDGX Top, which is 

subject to competition from the Nasdaq, 

NYSE, and other exchanges that offer 

similar products, including exchanges 

that provide similar pricing options for 

Derived Data made available on a White 

Label Service. In sum, the availability of 

a variety of alternative sources of 

information imposes significant 

competitive pressures on Exchange data 

products and the Exchange’s compelling 

need to attract order flow imposes 

significant competitive pressure on the 

Exchange to act equitably, fairly, and 

reasonably in setting the proposed data 

product fees. The proposed data product 

fees are, in part, responses to that 

pressure. The Exchange believes that the 

proposed fees would reflect an equitable 

allocation of its overall costs to users of 

its facilities. 

In addition, when establishing the 

proposed fees, the Exchange considered 

the competitiveness of the market for 

proprietary data and all of the 

implications of that competition. The 

Exchange believes that it has considered 

all relevant factors and has not 

considered irrelevant factors in order to 

establish fair, reasonable, and not 

unreasonably discriminatory fees and an 

equitable allocation of fees among all 

subscribers. The existence of 

alternatives to EDGX Top, including 

existing similar feeds by other 

exchanges, consolidated data, and 

proprietary data from other sources, 

ensures that the Exchange cannot set 

unreasonable fees, or fees that are 

unreasonably discriminatory, when 

subscribers can elect these alternatives 

or choose not to purchase a specific 

proprietary data product if its cost to 

purchase is not justified by the returns 

any particular vendor or subscriber 

would achieve through the purchase. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were either 

solicited or received. 


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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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