[Federal Register Volume 87, Number 17 (Wednesday, January 26, 2022)]
[Notices]
[Pages 4066-4069]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-01461]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94016; File No. SR-LCH SA-2022-001]


Self-Regulatory Organizations; LCH SA; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Relating to the New 
Swaption Standard Terms Supplement

January 20, 2022.
    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 January 18, 2022, Banque Centrale de Compensation, which conducts 
business under the name LCH SA (``LCH SA''), filed with the Securities 
and Exchange Commission (``Commission'') the proposed rule change 
described in Items I, II and III below, which Items have been prepared 
primarily by LCH SA. LCH SA filed the proposed rule change pursuant to 
Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(4)(i) 
thereunder,\4\ such that the proposed rule change was immediately 
effective upon filing with the Commission. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(4)(i).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    (a) Banque Centrale de Compensation, which conducts business under 
the name LCH SA (``LCH SA''), is proposing to amend its CDS Clearing 
Supplement (the ``Clearing Supplement'') to incorporate new terms and 
to make conforming, clarifying, and clean-up changes intended to take 
into account the new iTraxx and CDX swaption documentation, to be 
published by the relevant Markit entity, updating swap curve references 
and model inputs to the relevant risk-free rates and making references 
to the new 2021 ISDA Interest Rate Derivatives Definitions

[[Page 4067]]

published by the International Swaps and Derivatives Association, Inc. 
(``ISDA'') (the ``Proposed Rule Change'').\5\
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    \5\ Capitalized terms not defined or modified in this rules 
proposal will have the same meaning as in LCH SA's existing CDS 
Clearing Rule Book or Clearing Supplement.
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    The text of the Proposed Rule Change has been annexed as Exhibit 5.
    The launch of this initiative will be contingent upon LCH SA's 
receipt of all necessary regulatory approvals, including the approval 
by the Commission of the proposed rule change described herein.
    (b) Not applicable.
    (c) Not applicable.

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

(a) Purpose
    The purpose of the Proposed Rule Change is to make the necessary 
amendments to the Clearing Supplement to take into account upcoming 
versions of the:

--iTraxx[supreg] Europe Untranched Transactions Swaption Standard Terms 
Supplement; and
--CDX Untranched Transactions Swaption Standard Terms Supplement, due 
to be published respectively by Markit Indices GmbH and Markit North 
America, Inc., in December 2021 and later in 2022 (together the ``New 
Swaption STSs'').

    Minimal changes have been made to the New Swaption STSs mainly in 
order to (i) update the model inputs to risk-free rates, and (ii) 
incorporate the new 2021 ISDA Interest Rate Derivatives Definitions.
    The new amendments proposed to be made to Part C of the Clearing 
Supplement in order to take into account the New Swaption STSs have 
been replicated in Part B for consistency purposes.
(1) Proposed Amendments To Reflect the New Swaption STSs
    In Part C of the Clearing Supplement, the definitions of ``CDX 
Swaption Standard Terms Supplement'' and ``iTraxx[supreg] Swaption 
Standard Terms Supplement'' as set out in Section 1.2 have been amended 
to refer to the latest version in force as published by the relevant 
Markit entity or any affiliate hereof. Similar changes have been made 
to the definition of ``Index Swaption Cleared Transaction 
Confirmation''.
    Consequently, Section 1.2 of Part C has been also amended to 
include the new defined term of ``2021 Definitions'' which mean the 
2021 ISDA Interest Rate Derivatives Definitions published by ISDA as 
the New Swaption STSs to be published in 2022 will refer to them 
instead of the 2006 Definitions. Therefore the defined term ``ISDA Swap 
Transaction Definitions'' has been also added in Section 1.2 of Part C 
to refer to the 2021 Definitions or the 2006 Definitions which are 
incorporated by reference in the Markit Standard Terms Supplement.
    Any reference to the ``2006 Definitions'' in the Clearing 
Supplement has been replaced with a reference to the new defined term 
``ISDA Swap Transaction Definitions'' so that depending on the version 
of the iTraxx[supreg] or CDX Swaption Standard Terms Supplement in 
force, either the 2006 Definitions or the 2021 Definitions will apply.
    The definition of ``Exercise Notice'' in Section 1.2. of Part C has 
been amended to add a reference to the relevant provisions of the 2021 
Definitions.
    The new defined term ``Markit Standard Terms Supplement'' has been 
included in Section 1.2 of Part C, for the purpose of referring to the 
iTraxx[supreg] Swaption Standard Terms Supplement and/or the CDX 
Swaption Standard Terms Supplement, as the context requires.
    A new Section 2.4 ``Markit Standard Terms Supplement Updates'' has 
been added in Section 2 of Part C to allow LCH SA to compress Index 
Swaption Cleared Transactions subject to different versions of the 
Markit Standard Terms Supplement, provided they are of the same 
Swaption Type, following consultation with the CDSClear Product 
Committee. For consistency purpose, we have added a reference to this 
new Section 2.4 in the definition of ``Swaption Type'' in Section 1.2 
of Part C. The purpose of the amendment is to make the link between the 
new Section 2.4 that would allow for the compression of the relevant 
transactions and the definition of ``Swaption Type'' which is a 
condition to be complied with for compression purpose in accordance 
with the CDS Clearing Rule Book and Section 5 of the Procedures.
    In the 2021 Definitions and the New Swaptions STSs, the defined 
term of ``Underlying Swap Transaction'' is replaced by ``Underlying 
Transaction'': This change has been replicated in Sections 7.2, 7.3 and 
7.4 and Appendix VIII of Part C of the Clearing Supplement by making an 
additional reference to this equivalent defined term in the 2021 
Definitions so that the correct defined term will apply depending on 
whether the 2006 Definitions or the 2021 Definitions are applicable.
(2) Proposed Amendments for Consistency Purpose
    In Part B of the Clearing Supplement, the definition of ``Index 
Cleared Transaction Confirmation'' has been amended to reflect the 
proposed changes made to equivalent definitions in Part C. that would 
only apply to index transaction as they are subject to the relevant 
standard terms supplement published by Markit (contrary to the single 
name transactions). Thus, the sub-paragraphs of the definition refers 
to the last version of the confirmation or relevant Standard Terms 
Supplement which is published by the relevant Markit entity or its 
affiliate. The reference to the Implementation Date of the 2019 ISDA 
Narrowly Tailored Credit Event Protocol has been removed from these 
sub-paragraphs as the Implementation Date has already passed.
    Fungibility provisions which are equivalent to the new Section 2.4 
of Part C have been included in a new Section 2.6 for consistency 
purposes so that should there be two versions of the relevant Markit 
Standard Terms Supplement that would apply, there would be the 
necessary provisions for allowing LCH SA to proceed with the 
compression of transactions subject to different versions. 
Consequently, the new defined term of ``Markit Standard Terms 
Supplement'' has been added in Section 1.2 of Part B and shall mean any 
of the published Standard Terms Supplements as referred to in the 
definition of ``Index Cleared Transaction Confirmation'' in this 
Section 1.2 and a reference to the new Section 2.6 has been added in 
the definition of ``CDS Type'' in Section 1.2 of Part B. The purpose of 
the amendment is to make the link between the new Section 2.6 that 
would allow for the compression of the relevant transactions and the 
definition of ``CDS Type'' which is a condition to be complied with for

[[Page 4068]]

compression purpose in accordance with the CDS Clearing Rule Book and 
Section 5 of the Procedures.
(b) Statutory Basis
    LCH SA believes that the Proposed Rule Change is consistent with 
the requirements of Section 17A of the Securities Exchange Act of 1934 
\6\ (the ``Act'') and the regulations thereunder, including the 
standards under Rule 17Ad-22 \7\. In particular, Section 17(A)(b)(3)(F) 
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, to the extent applicable, 
derivatives 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.\8\ 
Consistent with this requirement, the Proposed Rule Change is needed so 
that LCH SA can duly continue clearing the CDS products referencing the 
new standard terms supplement properly, promptly and accurately. In 
addition, making the Proposed Rule Change would not require changes to 
the existing margin methodology, default management policies and 
procedures and operational process. All products proposed for clearing 
by CDSClear will continue to be cleared pursuant to LCH SA's existing 
clearing arrangements and related financial safeguards, protections and 
risk management procedures which is consistent with Exchange Act Rule 
17Ad-22(e)(17).\9\
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    \6\ 15 U.S.C. 78q-1.
    \7\ 17 CFR 240.17Ad-22.
    \8\ 15 U.S.C. 78q-1(b)(3)(F).
    \9\ 17 CFR 240.17Ad-22(e)(17).
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    Further, Rule 17Ad-22(e)(1) \10\ requires a covered clearing agency 
to provide for a well-founded, clear, transparent and enforceable legal 
basis for each aspect of its activities in all relevant jurisdictions. 
Rule 17Ad-22(e)(2)(iii) \11\ also requires a covered clearing agency to 
support the objectives of participants.
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    \10\ 17 CFR 240.17Ad-22(e)(1).
    \11\ 17 CFR 240.17Ad-22(e)(2)(iii).
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    LCH SA believes that this Proposed Rule Change would help to ensure 
that LCH SA CDSClear service is referencing the current version in 
force of the standard terms supplement, and therefore would help to 
establish a clear, transparent, and enforceable legal basis for such 
products to be cleared contributing to the objectives of market 
participants to use the industry standard documentation and which is 
also fully consistent with the requirement for a covered clearing 
agency to have a clear, transparent and enforceable legal aspect for 
each aspect of its activities.
    As explained above, the Proposed Rule Change is only intended to 
take into account the upcoming versions of the New Swaption STSs in 
order to duly update the model inputs to risk-free rates, and 
incorporate the new 2021 ISDA Interest Rate Derivatives Definitions 
under the CDS Clearing rules to make it up to date, clear and duly 
enforceable.
    Further, the Proposed Rule Change will also permit market 
participants to have certainty over the fungibility of options executed 
under different versions of the STS, and clear options expiring in 
April 2022 and beyond using the market standard terms. As LCH SA lists 
the next three expiries, the April 2022 expiry options should be made 
available to clear the day after the January expiry, i.e., 20 January 
2022.
    For all the reasons above, LCH SA believes that the Proposed Rule 
Change is consistent with the requirements of Section 17A of the 
Securities Exchange Act of 1934 \12\ (the ``Act'') and the regulations 
thereunder, including the standards under Rule 17Ad-22 \13\ discussed 
above.
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    \12\ 15 U.S.C. 78q-1.
    \13\ 17 CFR 240.17Ad-22.
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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.\14\
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    \14\ 15 U.S.C. 78q-1(b)(3)(I).
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    As mentioned above, the Proposed Rule Change is reflecting the New 
Swaption STSs including the ISDA Definitions that are an industry 
response and initiative applicable to all CDS market participants.
    Further, this Proposed Rule Change would apply equally to all 
clearing members and their clients and would not adversely affect their 
ability to engage in cleared transactions or to access LCH SA's 
clearing services as LCH SA will continue to apply its existing fair 
and open access criteria to the CDSClear service.
    Therefore, LCH SA does not believe that the proposed rule would 
impose any 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

    The foregoing proposed rule change has become effective upon filing 
pursuant to Section 19(b)(3)(A) of the Act and paragraph (f) of Rule 
19b-4 thereunder. At any time within 60 days of the filing of the 
proposed rule change, the Commission summarily may temporarily suspend 
such proposed 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

    <bullet> Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#d0a2a5bcb5fdb3bfbdbdb5bea4a390a3b5b3feb7bfa6"><span class="__cf_email__" data-cfemail="5c2e293039713f3331313932282f1c2f393f723b332a">[email protected]</span></a>. Please include 
File Number SR-LCH SA-2022-001 on the subject line.

Paper Comments

    <bullet> 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-2022-001. 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

[[Page 4069]]

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/rulebooks/proposed-rule-changes.
    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-2022-001 and should 
be submitted on or before February 16, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-01461 Filed 1-25-22; 8:45 am]
BILLING CODE 8011-01-P


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