Federal Register / Vol. 83, No. 3 / Thursday, January 4, 2018 / Notices 557 

22 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Regulation (EU) No 600/2014 of the European 

Parliament and of the Council of 15 May 2014 on 

markets in financial instruments and amending 

Regulation (EU) No 648/2012. 

4Securities Exchange Act Release No. 34–82194 

(December 1, 2017), 82 FR 57803 (December 7, 

2017) (SR–LCH–2017–010) (‘‘Notice’’). 

5Regulation (EU) No 648/2012 of the European 

Parliament and of the Council of 4 July 2012 on 

OTC derivatives, central counterparties and trade 

reporting. 

6Capitalized terms not otherwise defined herein 

have the meanings ascribed to them in the 

Rulebook. 

7 In this context, the Commission understands 

STP to mean that an authorized CCP must have 

systems, procedures, and arrangements in place to 

ensure derivatives are cleared as quickly as 

technologically practicable using automated 

systems. Notice, 82 FR at 57804. The Commission 

understands that RTS 26 provides detailed 

additional requirements regarding the transfer of 

information and related authorized CCP rulebook 

requirements, as well as timelines for the transfer 

of information, among other things. See id. at 57803 

& n.5 (citing RTS 26). 

8Notice, 82 FR at 57803. 

9Commission Delegated Regulation (EU) 2017/ 

582 of 29.6.2016 supplementing Regulation (EU) No 

600/2014 of the European Parliament and of the 

Council with regard to regulatory technical 

standards specifying the obligation to clear 

derivatives traded on regulated markets and timing 

of acceptance for clearing. 

10Commission Delegated Regulation (EU) of 

22.9.2017 amending Commission Delegated 

Regulation (EU) No 149/2013 with regard to 

regulatory technical standards on indirect clearing 

arrangements. A separate, but identical, set of RTS 

apply to indirect clearing of exchange-traded 

derivatives. See, Commission Delegated Regulation 

(EU) of 22.9.2017 supplementing Regulation (EU) 

No 600/2014 with regard to regulatory technical 

standards on indirect clearing arrangements. 

11The Commission understands that the term 

‘‘trading venue,’’ as used in RTS 26, refers to EUbased venues only (i.e., regulated markets, 

multilateral trading facilities and organized trading 

facilities). LCH SA therefore represents that thirdContinued 

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–2017–008 on the subject 

line. 

Paper Comments 

• Send paper comments in triplicate 

to Brent J. Fields, Secretary, Securities 

and Exchange Commission, 100 F Street 

NE, Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–CboeEDGX–2017–008. 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 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–2017–008 and 

should be submitted on or before 

January 25, 2018. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.22

Robert W. Errett, 

Deputy Secretary. 

[FR Doc. 2017–28495 Filed 1–3–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–82421; File No. SR–LCH 

SA–2017–010] 

Self-Regulatory Organizations; LCH 

SA; Order Granting Accelerated 

Approval of a Proposed Rule Change 

Relating to the Implementation of the 

Markets in Financial Instruments 

Regulation 

December 29, 2017. 

I. Introduction 

On November 21, 2017, Banque 

Centrale de Compensation, which 

conducts business under the name LCH 

SA (‘‘LCH SA’’), filed with the 

Securities and Exchange Commission 

(‘‘SEC’’ or ‘‘Commission’’), pursuant to 

Section 19(b)(1) of the Securities 

Exchange Act of 1934 (‘‘Act’’),1 and 

Rule 19b–4 thereunder,2 a proposed rule 

change to make conforming and 

clarifying changes necessary to 

implement certain provisions of the 

European Union’s Markets in Financial 

Instruments Regulation (‘‘MiFIR’’).3 The 

proposed rule change was published for 

comment in the Federal Register on 

December 7, 2017.4 The Commission 

received no comment letters regarding 

the proposed rule change. For the 

reasons discussed below, the 

Commission is approving the proposed 

rule change on an accelerated basis. 

II. Description of the Proposed Rule 

Change 

a. Overview 

The principal purpose of this 

proposed rule change is to amend LCH 

SA’s CDS Clearing Rulebook (the 

‘‘Rulebook’’) and CDS Clearing 

Procedures (the ‘‘Procedures’’) to 

implement provisions of MiFIR that are 

applicable to central counterparties 

(‘‘CCPs’’) authorized under the 

European Markets Infrastructure 

Regulation (‘‘EMIR’’) 5 (each such CCP, 

an ‘‘authorized CCP’’).6 In particular, 

the proposed rule changes are intended 

to implement Article 29 of MiFIR, 

which the Commission understands 

requires authorized CCPs to establish 

effective systems, procedures and 

arrangements to ensure that cleared 

derivatives transactions are submitted 

and accepted for clearing on a straightthrough processing (‘‘STP’’) basis,7 and 

Article 30 of MiFIR, which the 

Commission understands requires 

authorized CCPs to establish indirect 

clearing arrangements with respect to 

exchange-traded derivatives (‘‘ETDs’’) 

that are of ‘‘equivalent effect’’ to the 

corresponding requirements under 

EMIR.8

In addition, the Commission 

understands that the European 

Commission has adopted regulatory 

technical standards to set more specific 

requirements that authorized CCPs must 

meet in order to comply with MiFIR. 

The regulatory technical standards for 

straight-through processing (‘‘RTS 26’’) 

were adopted in 2016.9 More recently, 

the European Commission adopted 

regulatory technical standards, which 

align the indirect clearing requirements 

under EMIR and MiFIR (‘‘Indirect 

Clearing RTS’’).10 MiFIR takes effect 

January 3, 2018 and it is expected that 

the Indirect Clearing RTS will also take 

effect on the same date. 

b. Straight-Through Processing 

The Commission understands that 

RTS 26 establishes the specific 

requirements with which authorized 

CCPs, trading venues,11 and clearing 


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country venues (e.g., U.S. swap execution facilities, 

security-based swap execution facilities, designated 

contract markets and national securities exchanges) 

are not required to comply with the RTS 26 

provisions applicable to trading venues. 

Notwithstanding this definition, LCH SA explains 

that it proposes to apply the STP amendments 

described herein with respect to all derivatives 

transactions concluded on swap execution facilities 

and designated contract markets registered with the 

U.S. Commodity Futures Trading Commission 

(‘‘CFTC’’) and the definition of the term ‘‘Trading 

Venue’’ in the Rulebook has been amended 

accordingly (See Section 1.1.1 of the Rulebook). 

Notice, 82 FR at 57803, n. 7. 

12The Commission understands that the term 

‘‘clearing member’’ is not defined in RTS 26. 

However, Article 29 of MiFIR refers to ‘‘investment 

firms which act as clearing members in accordance 

with’’ EMIR. LCH SA represents that the term 

‘‘investment firm’’ refers only to those EU firms 

which are required to be authorized under the 

revised Markets in Financial Instruments Directive 

(‘‘MiFID II’’) and, therefore, third-country firms that 

are clearing members of authorized CCPs (e.g., SECregistered broker dealers (‘‘BDs’’) and futures 

commission merchants (‘‘FCM’’) registered with the 

CFTC) are not required to comply with the RTS 26 

provisions applicable to clearing members. In any 

event, LCH SA proposes to apply the STP 

requirements discussed herein to all derivatives 

transactions submitted for clearing by any Clearing 

Member, including a Clearing Member that is a BD 

or FCM. Notice, 82 FR at 57804, n. 8. 

13Notice, 82 FR at 57803–04. 

14 Id. at 57804. 

15 Id. 

16LCH SA represents that as a CFTC-registered 

derivatives clearing organization, LCH SA is 

currently subject to this same requirement in 

connection with its CDS Clearing Service. See, 17 

CFR 39.12(b)(7); CFTC Staff Guidance of StraightThrough Processing, dated September 26, 2013, 

available at http://www.cftc.gov/idc/groups/public/ 

@newsroom/documents/file/stpguidance.pdf. 

Notice, 82 FR at 57804, n. 9. 

17Notice, 82 FR at 57804. 

18 Id. 

19 Id. 

20 Id. 

21 Id. 

22 Id. 

23 Id. 

24 Id. 

members 12 must comply in order to 

ensure that transactions in cleared 

derivatives are submitted and accepted 

for clearing ‘‘as soon as technologically 

practicable using automated systems,’’ 

as required by Article 29(2) of MiFIR. 

LCH SA stated that it must comply with 

the RTS 26 requirements applicable to 

authorized CCPs.13 These requirements 

can be conceptually divided as: (i) A 

CCP’s information requirements; (ii) 

cleared derivatives transactions 

concluded on a trading venue; (iii) 

cleared derivatives transactions 

concluded bilaterally; (iv) resubmission 

of cleared derivatives transactions in the 

event of clerical error or technical 

problems; and (v) backloading 

transactions. 

i. CCP Information Requirements 

Article 1(2) of RTS 26 requires an 

authorized CCP to detail in its rules the 

information it needs from trading 

venues and counterparties to clear 

derivatives transactions, and the format 

such information must take, in order for 

the authorized CCP to accept that 

transaction for clearing.14

The Commission understands that the 

Rulebook currently provides that all 

clearing members must be participants 

of at least one Approved Trade Source 

System, i.e., a middleware provider, 

which receives Original Transaction 

Data relating to Intraday Transactions 

from the relevant Clearing Members or 

the relevant Trading Venue. The 

Approved Trade Source System is then 

responsible for ensuring that this data is 

then submitted to LCH SA. To give 

effect to the CCP information 

requirements of Article 1(2) of RTS 26, 

LCH SA proposed to amend Article 

3.1.4.1 of the Rulebook to confirm that 

the data relating to such submission 

must be made in a format acceptable to, 

or required by, the relevant Approved 

Trade Source System.15

ii. Cleared Derivatives Transactions 

Concluded on a Trading Venue 

Article 3(4) of RTS 26 requires an 

authorized CCP to accept or reject a 

cleared derivatives transaction 

concluded on a trading venue for 

clearing within 10 seconds of receipt of 

the relevant information from the 

trading venue.16 Where the authorized 

CCP determines to reject the transaction 

for clearing, it is required to inform the 

clearing member and the trading venue 

on a real-time basis.17

LCH SA noted that it has traditionally 

imposed a series of controls on Intraday 

Transactions, including the following: 

• Eligibility Controls, which verify 

the completeness of the information 

relating to the Original Transaction and 

to determine whether the Original 

Transaction meets LCH SA’s Eligibility 

Requirements; 

• Client Transaction Checks, which 

verify whether, in respect of an Original 

Transaction that is a Client Transaction, 

the relevant Clearing Member has 

consented to the registration of the trade 

on behalf of its Client; and 

• Notional and Collateral Checks, 

which verify whether accepting the 

trade for clearing would exceed the 

relevant Clearing Member’s Maximum 

Notional Amount and/or whether the 

Clearing Member has sufficient 

collateral available to satisfy the margin 

requirement associated with clearing the 

trade.18

LCH SA proposed to amend Section 

5.3 of the Procedures to confirm that, in 

accordance with Article 3(4) of RTS 26, 

the relevant Clearing Member(s) are not 

required to provide their consent to the 

acceptance of a Trading Venue 

Transaction for clearing.19 LCH SA 

noted that it will, however, apply the 

Notional and Collateral Checks to 

Trading Venue Transactions.20 LCH SA 

also proposed to amend Article 3.1.4.5 

of the Rulebook to make clear that all 

stages of the intraday clearing process 

must occur within the timeframe 

required by Applicable Law, meaning 

that LCH SA must perform the Notional 

and Collateral Checks within the 10 

second time-frame prescribed by Article 

3(4) of RTS 26.21

Finally, LCH SA proposed to amend 

Article 3.1.5.1 of the Rulebook to clarify 

that notice of a Rejected Transaction 

will be provided to the relevant Trading 

Venue and/or Approved Trade Source 

System in accordance with Applicable 

Law.22

iii. Cleared Derivatives Transactions 

Concluded Bilaterally 

The Commission understands that 

Article 4(2) of RTS 26 requires an 

authorized CCP to send information 

concerning a cleared derivatives 

transaction concluded bilaterally 

between counterparties it receives from 

such counterparties to the relevant 

clearing member(s) within 60 seconds of 

receipt of such information. Moreover, 

LCH SA stated that Article 4(3) of RTS 

26 requires the authorized CCP to accept 

or reject such a bilateral transaction for 

clearing within 10 seconds of receipt of 

the acceptance or non-acceptance by 

such clearing member(s), and where the 

authorized CCP determines to reject the 

transaction for clearing it is required to 

inform the clearing member on a realtime basis.23

LCH SA proposed to amend Section 

5.3 of the Procedures to clarify that 

cleared derivatives transactions 

concluded bilaterally will be subject to 

the Client Transaction Checks referred 

to above. In particular, LCH SA 

proposed that, upon successful 

completion of the Eligibility Controls, it 

will send a Consent Request to the 

relevant Clearing Member(s). Pursuant 

to Article 3.1.4.5 of the Rulebook, LCH 

SA is required to send each such 

Consent Request in accordance with the 

timeframe required by Applicable Law 

(i.e., 60 seconds).24

Once LCH SA has delivered a Consent 

Request, a Clearing Member then has a 

choice regarding how to respond. It may 

opt for a so-called ‘‘Automatic Take-Up 

Process,’’ whereby the Clearing Member 

effectively pre-approves specific Clients 

for automatic acceptance of Consent 

Requests; in such circumstances, the 

Clearing Member will not be required to 


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25 Id. 

26 Id. 

27 Id. 

28 Id. 

29 Id. at 57805. 

30 Id. 

31 Id. 32 Id. 33 Id. 34LCH SA represented that the indirect clearing 

arrangements for OTC derivatives described herein, 

in particular, the requirements relating to account 

structures and default management, generally will 

not be applicable to Clearing Members that are FCM 

Clearing Members or U.S. Clearing Members, i.e., 

BDs. LCH SA further represented that, in 

connection with the CDS Clearing Service, FCM 

Clearing Members will continue to be required to 

maintain cleared swaps customer accounts in 

accordance with the segregation requirements set 

out in Section 4d(f) of the Commodity Exchange Act 

and Part 22 of the CFTC’s rules, 17 CFR 22.1 et seq. 

Similarly, LCH SA explained that a U.S. Clearing 

Member that is not also an FCM Clearing Member 

will be required to maintain customer securitybased swap accounts in accordance with 17 CFR 

240.15c3–3. See Notice, 82 FR at 57805. 

35Notice, 82 FR at 57805. 

36 Id. 

37 Id. 

38 Id. at 57805–06. 

39 Id. at 57806. 

respond to the Consent Request.25 A 

Clearing Member may also opt for a 

‘‘Manual Take-Up Process,’’ whereby it 

must affirmatively respond within the 

time frame required by Applicable Law 

(i.e., 60 seconds) or otherwise by the 

end of the real-time clearing session on 

that day, as set forth in the amendments 

proposed by LCH SA.26 The proposed 

changes would then require LCH SA to 

accept or reject the trade, and make the 

relevant notifications, within the 

timeframe required under Applicable 

Law.27

Finally, LCH SA proposed to amend 

Article 3.1.5.1 of the Rulebook to clarify 

that notice of a Rejected Transaction 

will be provided to the relevant Clearing 

Member and/or Approved Trade Source 

System in accordance with Applicable 

Law.28

iv. Resubmission 

Where the non-acceptance of a 

cleared derivatives transaction for 

clearing is due to a clerical or technical 

error, Article 5(3) of RTS 26 permits the 

trade to be resubmitted within one hour, 

provided the original counterparties to 

the trade agree to such resubmission.29

Accordingly, LCH SA proposed to 

amend Article 3.1.5.1 of the Rulebook to 

state that a Rejected Transaction may be 

resubmitted for clearing in accordance 

with Applicable Law. 

v. Treatment of Backloading 

Transactions 

The Commission understands that 

STP requirements apply to ‘‘cleared 

derivatives transactions,’’ which are 

defined in Article 29(2) of MiFIR to 

include derivatives that are concluded 

on an EU-regulated market, all OTC 

derivatives that are subject to an EMIR 

mandatory clearing requirement, and all 

other derivatives which are agreed by 

the relevant counterparties to be 

cleared.30 LCH SA proposed to amend 

the Rulebook to designate Backloading 

Transactions as outside of the scope of 

MiFIR’s STP requirements. Specifically, 

Article 3.1.6.3 would be amended to 

provide that LCH SA is entitled to 

assume that any Backloading 

Transaction submitted for clearing by 

LCH SA was either entered into prior to 

the effective date of MiFIR (i.e., January 

3, 2018) or is otherwise not subject to 

an EMIR mandatory clearing 

requirement and that the parties to the 

Backloading Transaction did not agree 

at the time of execution for the 

Backloading Transaction to be subject to 

clearing.31

c. Indirect Clearing Arrangements 

i. Indirect Clearing RTS 

The Commission understands that 

Article 4(3) of EMIR requires that 

indirect clearing arrangements should 

not increase counterparty risk and 

ensure protections that are of 

‘‘equivalent effect’’ to the protections for 

client clearing set out in Articles 39 and 

48 of EMIR.32 For these purposes, the 

term ‘‘indirect clearing arrangement’’ 

refers to a set of relationships—also 

called a ‘‘chain’’—where at least two 

intermediaries are interposed between 

an end-client and the relevant 

authorized CCP. The most basic indirect 

clearing chain therefore involves the 

following four entities: An authorized 

CCP; a clearing member of the 

authorized CCP; the client of the 

Clearing Member that is itself an 

intermediary (‘‘Direct Client’’); and the 

client of such Direct Client (‘‘Indirect 

Client’’). The Commission also 

understands that longer chains are 

permitted in certain circumstances. 33

LCH SA noted that the majority of the 

obligations under the Indirect Clearing 

RTS fall to Clearing Members and Direct 

Clients, but that authorized CCPs must 

comply with certain new requirements 

relating to account structures, default 

management, and risk management.34

Because indirect clearing was a concept 

introduced in EMIR, LCH SA stated that 

its Rulebook already had a number of 

features implementing the initial set of 

indirect clearing requirements. LCH SA 

proposed the following conforming 

amendments to reflect the updated 

requirements of the Indirect Clearing 

RTS.35

ii. Indirect Client Account Structures 

An authorized CCP must permit a 

clearing member to open and maintain 

at least the following two types of 

accounts for its Direct Client(s) that 

have Indirect Client(s): 

• One omnibus segregated account for 

all Indirect Clients of all such Direct 

Clients (‘‘CCP OSA’’); and 

• one gross (position and margin) 

segregated account per Direct Client for 

all Indirect Clients of that Direct Client 

that choose gross segregation (a ‘‘CCP 

GOSA’’). 

Therefore, an authorized CCP is 

expected to maintain at least: (i) One 

CCP OSA per clearing member; plus (ii) 

the requisite number of Direct Clientspecific CCP GOSAs per clearing 

member.36

The principal indirect clearing-related 

amendment to the Rulebook that LCH 

SA proposed is the introduction of two 

new account structures that are 

putatively designed to reflect the 

requirements of the Indirect Clearing 

RTS. Specifically, LCH SA proposed to 

introduce a new CCM Indirect Client 

Net Segregated Account Structure (i.e., 

a CCP OSA) as well as a new CCM 

Indirect Client Gross Segregated 

Account Structure (i.e., a CCP GOSA), 

collectively referred to as CCM Indirect 

Client Segregated Account Structures.37

LCH SA also proposed to amend Title 

V, Chapter 2 of the Rulebook to specify 

the circumstances in which such 

Account Structures may be opened. In 

particular, Article 5.2.1.3 would be 

amended to clarify that a given CCM 

Client that provides indirect clearing 

services to CCM Indirect Clients must be 

allocated to one CCM Indirect Client Net 

Segregated Account Structure but may, 

upon request, be allocated to one CCM 

Indirect Client Gross Segregated 

Account Structure.38

iii. Default Management 

LCH SA noted that the Indirect 

Clearing RTS primarily addresses a 

Clearing Member’s default management 

of an insolvent Direct Client and 

therefore does not specifically address 

an authorized CCP’s treatment of CCP 

OSAs and CCP GOSAs in the event of 

a Clearing Member default. 

Nevertheless, LCH SA stated that it 

believes that these accounts should be 

held, to the extent possible, in 

accordance with the requirements of 

EMIR Articles 39 and 48.39 As a result, 

LCH SA proposed the following 

amendments to the Rulebook to address 

the treatment of CCM Indirect Client 

Segregated Account Structures in the 


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40 Id. 

41 Id. 

42 Id. 

43 Id. 

44 Id. 

45 Id. at 57806–07. 

46 Id. at 57807. 

event of the default of the CCM, the 

CCM Client and of LCH SA itself: 

CCM Default 

• In the event of a CCM default, 

Clause 4.3 of the CDS Default 

Management Process would be amended 

to provide that LCH SA will attempt, in 

the first instance, to port the Client 

Cleared Transactions of a CCM Indirect 

Gross Segregated Account Client to a 

single Backup Clearing Member, 

provided that certain conditions are 

met, including that the Backup Clearing 

Member has unconditionally agreed to 

act as Backup Clearing Member and that 

the instruction is received within the 

prescribed timeframe—referred to as the 

‘‘Porting Window’’—established by LCH 

SA for this purpose. If these conditions 

are not met, LCH SA proposed to 

liquidate the existing Client Cleared 

Transactions and re-establish them with 

the Backup Clearing Member. LCH SA 

also proposed, upon instruction, to 

transfer the associated Collateral to the 

Backup Clearing Member. 

• In respect of Client Cleared 

Transactions in a CCM Indirect Client 

Net Segregated Account Structure (or 

where porting is not achieved in respect 

of Client Cleared Transactions in a in a 

CCM Indirect Client Gross Segregated 

Account Structure), LCH SA proposed 

to amend Clause 4.4.3 of the CDS 

Default Management Process, which 

requires LCH SA to calculate an 

amount—called the ‘‘CDS Client 

Clearing Entitlement’’—equal to: (1) The 

pro rata share of the liquidation of the 

Non-Ported Cleared Transactions; plus 

(2) the pro rata share of the liquidation 

value of the Client Assets recorded in 

the relevant Client Collateral Account; 

minus (3) the pro rata share of the costs 

of any hedging undertaken; minus (4) 

the pro rata share of the costs, expenses 

and liabilities of LCH SA in 

implementing the CDS Client Default 

Management Process, in each case 

where such pro rata share is attributable 

to a given CCM Indirect Client to 

reference Indirect Client Segregated 

Account Structures. 

• Upon a CCM default, LCH SA 

proposed to amend Article 4.3.3.1 of the 

Rulebook to clarify that CCM Indirect 

Clients belonging to a CCM Indirect 

Client Gross Segregated Account 

Structure bear no fellow-customer risk: 

Only the value of the Collateral referable 

to a given CCM Indirect Client—called 

the ‘‘CCM Indirect Client Gross Account 

Balance’’—will be available to satisfy 

any Damages attributable to the 

liquidation of any Non-Ported Cleared 

Transactions referable to such CCM 

Indirect Client.40

CCM Client Default 

In the event of the default of a CCM 

Client that has CCM Indirect Clients, 

LCH SA’s normal default management 

arrangements for CCMs will not apply. 

Instead, LCH SA proposed that the 

defaulting CCM Client will be default 

managed by the CCM, which will 

determine whether to liquidate the 

Client Cleared Transactions registered 

in the relevant CCM Indirect Client 

Segregated Account Structures or to 

attempt to port the Client Cleared 

Transactions of the CCM Indirect 

Clients belonging to a CCM Indirect 

Client Gross Segregated Account 

Structure to a Backup Client. LCH SA 

also proposed amendments that provide 

that porting may occur on a 

consolidated basis, i.e., where all the 

CCM Indirect Clients appoint a single 

Backup Client, or on a per-CCM Client 

Trade Account basis, i.e., where a given 

CCM Indirect Client appoints a single 

Backup Client specific to that CCM 

Indirect Client. LCH SA proposed to 

amend Article 5.4.1.3 of the Rulebook to 

provide that LCH SA will make the 

relevant transfers in its records at the 

instruction of the CCM undertaking the 

default management of its defaulting 

CCM Client.41

LCH SA Default 

LCH SA proposed to amend Article 

1.3.1.9 of the Rulebook to clarify that, 

following a default by LCH SA, CCMs 

shall calculate a separate CCM Client 

Termination Amount in respect of each 

CCM Indirect Client Net Segregated 

Account Structure and each CCM 

Indirect Client Gross Segregated 

Account Structure it holds with LCH 

SA.42

iv. Miscellaneous 

The Commission understands that 

Article 3(3) of the Indirect Clearing RTS 

requires an authorized CCP to identify, 

monitor and manage any ‘‘material 

risks’’ arising from the provision of 

indirect clearing services that may affect 

the resilience of the authorized CCP to 

adverse market developments, and 

Article 2(3) of the Indirect Clearing RTS 

states that an authorized CCP may not 

‘‘prevent the conclusion of’’ indirect 

clearing arrangements that are entered 

into on reasonable commercial terms.43

Based on these requirements, LCH SA 

proposed to amend Article 5.1.3.1 of the 

Rulebook to clarify that a CCM may 

permit its CCM Clients to offer clearing 

services to their CCM Indirect Clients, 

provided certain conditions are met. 

Specifically, the proposed amendments 

would clarify that the contractual terms 

of the indirect clearing arrangements 

must comply with the relevant 

requirements of EMIR and MiFIR and 

must further provide for the 

establishment of CCM Indirect Client 

Segregated Account Structures 

(described in greater detail above), in 

accordance with the wishes of the 

relevant CCM Indirect Clients.44

Furthermore, LCH SA proposed to 

amend Article 5.2.1.1 of the Rulebook to 

include an express recognition that a 

given CCM Client may be acting in the 

capacity of clearing its own proprietary 

transactions as well as in the capacity of 

providing clearing services to its CCM 

Indirect Clients. Finally, LCH SA 

proposed amendments to Title V, 

Chapter 3 of the Rulebook to provide for 

non-default transfers of all Client 

Cleared Transactions in a given CCM 

Indirect Client Segregated Account 

Structure (accompanied by the 

associated Client Assets upon request) 

or partial transfers of Client Cleared 

Transactions in a given CCM Indirect 

Client Segregated Account Structure 

(without the associated Client Assets) to 

the relevant accounts of a Receiving 

Clearing Member.45

d. Certain Clarifying Amendments 

LCH SA also proposed certain 

clarifying revisions to the Rulebook, 

Procedures, and Clearing Notice as 

described below. 

i. Auction Member Representation 

LCH SA proposed amendments to 

various provisions of the CDS Default 

Management Process (Annex 1 of the 

Rulebook) to clarify the responsibilities 

between a Non-Defaulting Clearing 

Member and the Auction Member 

Representative appointed by the NonDefaulting Clearing Member to act in 

such Clearing Member’s place in the 

competitive bidding process as 

described in Clause 5.4 of the CDS 

Default Management Process.46

ii. Member Uncovered Risk 

LCH SA proposed to replace the 

definition of ‘‘Member Uncovered Risk’’ 

with ‘‘Group Member Uncovered Risk’’ 

to take into account the relevant LCH 

Group Risk Policy, which considers 

whether Clearing Members belong to the 

same group for purposes of the relevant 


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Federal Register / Vol. 83, No. 3 / Thursday, January 4, 2018 / Notices 561 

47 Id. 48 Id. 49 Id. 50 15 U.S.C. 78s(b)(2)(C). 51 15 U.S.C. 78q–1(b)(3)(F). 52 17 CFR 240.17Ad–22(e)(1). 

53 17 CFR 240.17Ad–22(e)(4). 

54 17 CFR 240.17Ad–22(e)(6). 

55 15 U.S.C. 78q–1(b)(3)(F). 

56 Id. 

57See supra note 34. 

58 17 CFR 240.15c–3–3. 

risk calculations, including calculation 

of margin and Default Fund 

requirements. The proposed revisions 

are set out in Section 4.4.1.2 and 

Section 4.4.1.8 of the Rulebook and 

Sections 2.12, 2.16, and 6.4 of the 

Procedures.47

iii. Calculation of Contributed Prices 

LCH SA proposed amendments to 

Section 5.18.2 of the Procedures to 

reflect changes made to the 

methodology with regard to the 

application of the bid-ask restraint in 

the calculation of contributed prices. In 

addition, LCH SA proposed to remove 

the references to a particular time in the 

Rulebook regarding the price 

contribution process. Consequently, the 

definition of ‘‘End of Day’’ would be 

removed from the Rulebook. LCH SA 

proposed to amend Article 4.2.7.7 of the 

Rulebook and Section 5.18.5 (b) and (d) 

of Procedure 5 accordingly.48

iv. New Approved Trade Source System 

LCH SA proposed to amend Clearing 

Notice no. 2017/064 regarding the 

Approved Trade Source Systems to add 

a new Approved Trade Source System, 

Bloomberg Trade Facility Ltd.49

III. Commission’s Findings and Order 

Granting Accelerated Approval of the 

Proposed Rule Change 

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

the Commission to approve a proposed 

rule change of a self-regulatory 

organization if it finds that such 

proposed rule change is consistent with 

the requirements of the Act and the 

rules and regulations thereunder 

applicable to such organization.50

Section 17A(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, in general, to protect investors and 

the public interest.51 Rule 17Ad– 

22(e)(1) requires that each covered 

clearing agency establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

provide for a well-founded, clear, 

transparent, and enforceable legal basis 

for each aspect of its activities in all 

relevant jurisdictions.52 Rule 17Ad– 

22(e)(4) requires, in relevant part, that 

each covered clearing agency establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to effectively 

identify, measure, monitor, and manage 

its credit exposures to participants.53

Rule 17Ad–22(e)(6) requires, in relevant 

part, a covered clearing agency that 

provides central counterparty services 

to establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to cover its credit 

exposures to its participants by 

establishing a risk-based margin system 

that, at a minimum, considers, and 

produces margin levels commensurate 

with, the risks and particular attributes 

of each relevant product, portfolio, and 

market.54 For the reasons discussed 

below, the Commission finds that the 

proposed rule change is consistent with 

Section 17A of the Act and Rule 17Ad– 

22(e) thereunder. 

a. Straight-Through Processing 

The Commission understands that 

MiFIR and RTS 26 require LCH SA to 

implement the provisions described 

above regarding STP. By so amending 

its Rulebook and Clearing Procedures, 

LCH SA indicated that it will be able to 

better ensure that transactions are 

submitted, accepted, and cleared 

without undue delay. As a result, the 

Commission finds that the proposed 

rule change regarding STP promotes the 

prompt and accurate clearance and 

settlement of securities transactions 

consistent with the requirements of 

Section 17A(b)(3)(F) of the Act.55

Moreover, the Commission further finds 

the proposed rule change protects 

investors and the public interest, 

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

the Act 56 because the expeditious 

processing of transactions in cleared 

derivatives reduces the possibility of 

those transactions being disrupted by 

intervening events, such as a 

technological breakdown or a reduction 

in the financial condition of one of the 

counterparties. 

In addition, because these 

amendments will maintain the 

consistency of LCH SA’s Rulebook and 

Procedures with MiFIR and RTS 26, the 

Commission finds the provisions with 

regard to STP will help ensure that LCH 

SA’s policies and procedures provide 

for a well-founded, clear, transparent, 

and enforceable legal basis for each 

aspect of its activities in all relevant 

jurisdictions, consistent with Rule 

17Ad–22(e)(1). 

b. Indirect Clearing 

The Commission similarly finds that 

the portions of the proposed rule change 

that seek to implement MiFIR and the 

Indirect Clearing RTS are consistent 

with Rule 17Ad–22(e)(1). As noted 

above, the Commission understands that 

MiFIR and the Indirect Clearing RTS 

require LCH SA to implement 

provisions regarding indirect clearing, 

which include establishing two types of 

indirect clearing accounts and 

establishing the process for handling the 

assets of indirect clearing clients in the 

event of the default of the CCM, the 

CCM Client, or LCH SA. Furthermore, as 

noted above, LCH SA has clarified the 

changes relating to indirect client 

clearing will not be applicable to LCH 

SA’s FCM Clearing Members or its U.S. 

Clearing Members, i.e. broker-dealers 

registered with the Commission. LCH 

SA has explained that FCM Clearing 

Members ‘‘will continue to be required 

to maintain cleared swaps customer 

accounts in accordance with the 

segregation requirements set out in 

Section 4d(f) of the Commodity 

Exchange Act and Part 22 of the CFTC’s 

rules, 17 CFR 22.1 et seq.’’ 57 Similarly, 

LCH SA explained that a U.S. Clearing 

Member that is not also an FCM 

Clearing Member will be required to 

maintain customer security-based swap 

accounts in accordance with 

Commission Rule 15c3–3.58 The 

Commission relies on these particular 

representations and explanations by 

LCH SA, and notes that it does not 

expect LCH SA to create CCP OSAs or 

CCP GOSAs for its FCM Clearing 

Members or U.S. Clearing Members. 

Instead, accounts for LCH SA’s FCM 

Clearing Members or U.S. Clearing 

Members will be subject to the 

applicable provisions of the Commodity 

Exchange Act and the rules and 

regulations promulgated thereunder 

and/or the Act and the rules and 

regulations promulgated thereunder. 

The Commission further understands 

that the proposed amendments to LCH 

SA’s Rulebook and Procedures will 

bring LCH SA into compliance with the 

indirect clearing requirements of MiFIR 

and the related Indirect Clearing RTS 

while at the same time leaving 

unmodified the account structure used 

for LCH SA’s FCM Clearing Members 

and its U.S. Clearing Members. 

Therefore, the Commission finds the 

provisions with regard to STP will help 

ensure that LCH SA’s policies and 

procedures provide for a well-founded, 

clear, transparent, and enforceable legal 

basis for each aspect of its activities in 


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59 17 CFR 240.17Ad–22(e)(1). 

60 15 U.S.C. 78q–1(b)(3)(F). 

61 17 CFR 240.17Ad–22(e)(4) and (6). 

62 15 U.S.C. 78q–1(b)(3)(F). 

63 15 U.S.C. 78s(b)(2)(C)(iii). 

64 Id. 

65 Id. 

66 15 U.S.C. 78q–1. 

67 15 U.S.C. 78s(b)(2). 

68 In approving the proposed rule change, the 

Commission considered the proposal’s impact on 

efficiency, competition, and capital formation. 15 

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

69 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). 

all relevant jurisdictions, consistent 

with Rule 17Ad–22(e)(1).59

c. Other Provisions 

With respect to the proposed rule 

change replacing the definition of 

‘‘Member Uncovered Risk’’ with ‘‘Group 

Member Uncovered Risk,’’ the 

Commission believes the proposed 

changes will improve LCH SA’s ability 

to identify and measure the risks 

associated with clearing processes by 

taking into account the relevant LCH 

Group Risk Policy and considering 

whether Clearing Members belong to the 

same group for purposes of the relevant 

risk calculations As a result, the 

Commission believes that LCH SA will 

be better situated to collect the level of 

resources commensurate with the risks 

associated with affiliated Clearing 

Members and will thereby be able to 

more appropriately cover its credit 

exposures to its participants. Therefore, 

the Commission finds that the proposed 

rule change regarding the definition of 

Group Member Uncovered Risk will 

further the protection of investors and 

the public interest, consistent with 

Section 17A(b)(3)(F) of the Act.60 For 

the same reasons, the Commission also 

finds that the proposed rule change 

regarding the definition of Group 

Member Uncovered Risk is consistent 

with the applicable requirements of 

Rules 17Ad–22(e)(4) and (e)(6).61

The proposed rule change also revises 

LCH SA’s CDS Default Management 

Process to clarify the responsibilities 

between a Non-Defaulting Clearing 

Member and the Auction Member 

Representative appointed by the NonDefaulting Clearing Member to act in 

such Clearing Member’s place in the 

competitive bidding process. In doing 

so, the Commission finds the proposed 

rule change facilitates LCH SA’s CDS 

Default Management Process, thereby 

enabling LCH SA to limit its exposures 

to potential losses from defaults by its 

participants and the exposures of nondefaulting participants to losses that 

they cannot anticipate or control. As a 

result, the Commission finds that the 

proposed rule change regarding the 

responsibilities between a NonDefaulting Clearing Member and the 

Auction Member Representative 

appointed by the Non-Defaulting 

Clearing Member further the protection 

of investors and the public interest 

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

the Act.62

In its filing, LCH SA requested that 

the Commission grant accelerated 

approval of the proposed rule change 

pursuant to Section 19(b)(2)(C)(iii) of 

the Exchange Act.63 Under Section 

19(b)(2)(C)(iii) of the Act,64 the 

Commission may grant accelerated 

approval of a proposed rule change if 

the Commission finds good cause for 

doing so. LCH SA believes that 

accelerated approval is warranted 

because the proposed rule change is 

required as of January 3, 2018 in order 

to comply with the requirements of 

MiFIR. 

The Commission finds good cause, 

pursuant to Section 19(b)(2)(C)(iii) of 

the Act,65 for approving the proposed 

rule change on an accelerated basis, 

prior to the 30th day after the date of 

publication of notice in the Federal 

Register, because the proposed rule 

change is required as of January 3, 2018 

in order to facilitate LCH SA’s efforts to 

comply with MiFIR, RTS 26, and the 

Indirect Clearing RTS. Additionally, the 

Commission notes that the proposed 

changes regarding indirect clearing do 

not apply to U.S. customers, and that 

LCH SA has represented that amending 

its Rulebook and Procedures to comply 

with requirements regarding indirect 

clearing do not impede compliance with 

relevant U.S. law, including Section 

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

IV. Conclusion 

On the basis of the foregoing, the 

Commission finds that the proposal is 

consistent with the requirements of the 

Act and in particular with the 

requirements of Section 17A of the 

Act 66 and the rules and regulations 

thereunder. 

It is therefore ordered pursuant to 

Section 19(b)(2) of the Act 67 that the 

proposed rule change (SR–LCH SA– 

2017–010) be, and hereby is, approved 

on an accelerated basis.68

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.69

Robert W. Errett, 

Deputy Secretary. 

[FR Doc. 2017–28492 Filed 1–3–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–82416; File No. SR– 

CboeBYX–2017–004] 

Self-Regulatory Organizations; Cboe 

BYX Exchange, Inc.; Notice of Filing 

and Immediate Effectiveness of a 

Proposed Rule Change Related to 

Market Data Fees 

December 28, 2017. 

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 December 

15, 2017, Cboe BYX Exchange, Inc. 

(‘‘BYX’’ or the ‘‘Exchange’’) 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 the Market Data section of its fee 

schedule to lower the Internal 

Distribution fees and to adopt per User 

fees for the Cboe One Summary Feed. 

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 


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