39622 Federal Register / Vol. 82, No. 160 / Monday, August 21, 2017 / Notices 

5 15 U.S.C. 78f(b). 

6 15 U.S.C. 78f(b)(5). 

7 15 U.S.C. 78f(b)(7). 8 15 U.S.C. 78s(b)(1). 

9 17 CFR 200.30–3(a)(73). 

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 Framework or Default 

Fund Methodology, as applicable. 

2. Statutory Basis 

The Exchange believes that the 

proposed rule change is consistent with 

Section 6(b) of the Act,5 in general, and 

furthers the objectives of Sections 

6(b)(5) 6 and 6(b)(7) 7 in particular in 

that it is designed: 

• To prevent fraudulent and 

manipulative acts and practices, 

• to promote just and equitable 

principles of trade, and 

• to remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system, and in general, to protect 

investors and the public interest. 

The proposed rule change would 

align CFE’s rules related to 

recordkeeping with the CFTC’s 

amended recordkeeping requirements. 

The Exchange believes that the 

proposed rule change furthers the 

ability of the Exchange to regulate its 

market by providing for updated and 

enhanced recordkeeping requirements 

(which include, among other things, a 

requirement to keep electronic records 

readily accessible for a [sic] five years). 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

CFE does not believe that the 

proposed rule change will impose any 

burden on competition not necessary or 

appropriate in furtherance of the 

purposes of the Act, in that the 

proposed rule change is consistent with 

the CFTC’s amended recordkeeping 

requirements. The Exchange believes 

that the proposed rule change is 

equitable and not unfairly 

discriminatory in that the rule 

amendments included in the proposed 

rule change would apply equally to all 

CFE Trading Privilege Holders. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were solicited 

or received with respect to the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The proposed rule change will 

become operative on August 28, 2017. 

At any time within 60 days of the date 

of effectiveness of the proposed rule 

change, the Commission, after 

consultation with the CFTC, may 

summarily abrogate the proposed rule 

change and require that the proposed 

rule change be refiled in accordance 

with the provisions of Section 19(b)(1) 

of the Act.8

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– 

CFE–2017–002 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–CFE–2017–002. 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 Web site (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 Web site 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 such 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change; 

the Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–CFE– 

2017–002, and should be submitted on 

or before September 11, 2017. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.9

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–17549 Filed 8–18–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81399; File No. SR–LCH 

SA–2017–007] 

Self-Regulatory Organizations; LCH 

SA; Notice of Filing of Proposed Rule 

Change Relating to Margin Framework 

and Default Fund Methodology for 

Options on Index Credit Default Swaps 

August 15, 2017. 

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 1, 

2017, 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 

LCH SA is proposing to amend its (i) 

Reference Guide: CDS Margin 

Framework (‘‘CDSClear Margin 

Framework’’ or ‘‘Framework’’) and (ii) 

CDSClear Default Fund Methodology 

(‘‘Default Fund Methodology’’) to 

incorporate terms and to make 

conforming and clarifying changes to 

allow options on index credit default 

swaps (‘‘CDS Options’’) to be cleared by 

LCH SA.3 A separate proposed rule 

change has been submitted concurrently 

(SR–LCH SA–2017–006) with respect to 

amendments to LCH SA’s rule book and 

other relevant procedures to incorporate 

terms and to make conforming and 

clarifying changes to allow options on 

index credit default swaps (‘‘CDS’’) to 

be cleared by LCH SA. The launch of 

clearing CDS Options will be contingent 

on LCH SA’s receipt of all necessary 

regulatory approvals, including the 


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approval by the Commission of the 

proposed rule change described herein 

and SR–LCH–SA–2017–006. 

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 

In connection with the clearing of 

CDS Options, LCH SA proposes to 

modify its CDSClear Margin Framework 

and Default Fund Methodology to 

manage the risk arising from clearing 

CDS Options and to streamline the 

descriptions in the existing CDSClear 

Margin Framework and Default Fund 

Methodology to take into account CDS 

Options and improve the organization 

and clarity of the CDSClear Margin 

Framework and Default Fund 

Methodology. 

(i). CDSClear Margin Framework 

The CDSClear Margin Framework will 

be reorganized to include a new 

introductory section covering the 

overall new structure of the Framework, 

which will include a description of the 

CDSClear pricing methodology and 

margin methodologies for single-name 

CDS, index CDS, and CDS Options. The 

margin methodologies used to calculate 

total initial margin will consist of seven 

components, i.e., self-referencing 

margin, spread margin, short charge, 

wrong way risk margin, interest rate risk 

margin, recovery rate margin, and vega 

margin. In addition, the Framework will 

also cover liquidity margin to account 

for liquidation cost or potential losses as 

a result of concentrated or illiquid 

positions, credit event margin to 

account for the risk of recovery rate 

changes during the credit event 

processes, and variation margin to 

account for observed mark-to-market 

changes as additional margin charges. 

Finally, the methodology for FX rate 

adjustments that are necessary for U.S. 

dollar denominated products cleared by 

LCH SA is described in relevant 

sections of the Framework. 

a. Pricing Methodology 

A new section on CDSClear pricing 

methodology is created as new Section 

2 in the Framework to cover both CDS 

pricing (section 2.1) and CDS Options 

pricing (section 2.2). LCH SA does not 

propose any change to the methodology 

currently used to price CDS under 

Section 2.1 but because pricing is an 

input used by various margin 

components to calculate total initial 

margin, LCH SA believes it is 

appropriate to remove the CDSClear 

pricing methodology from the existing 

spread margin section and incorporate it 

under the new Section 2. 

New section 2.2 describes the 

methodology that will be used to price 

CDS Options. LCH SA proposes to adopt 

a market standard model which makes 

certain adjustments to address the 

limitations of the classic Black-Scholes 

model and that is made available on 

Bloomberg (the ‘‘Bloomberg Model’’) 

and is commonly used by both dealers 

and buy-side participants in order to 

facilitate communication on index 

swaptions. The limitations of the classic 

Black-Scholes model include the 

inability to reflect the contractual cash 

flow exchanged upfront upon the 

exercise of the option. Neglecting the 

upfront cash flow exchange would have 

a significant impact for deeply in-themoney payer options because setting the 

underlying par spread curve flat at the 

strike level would considerably reduce 

the risk duration and, therefore, the 

potential profits and losses (‘‘P&Ls’’) 

resulting from the option exercise with 

respect to such options. In addition, if 

a credit event occurs with respect to the 

underlying index CDS after the option 

was traded but before its expiry, the 

resulting loss would be settled if and 

only if the option is exercised, and 

settlement would occur on the day of 

exercise. Finally, the strike and spot for 

price-based CDS Options are expressed 

in price terms rather than in spread 

terms and, therefore, require price-tospread conversion before using the 

Bloomberg Model. LCH SA proposes to 

incorporate the upfront cash flow 

amount to be exchanged upon exercise 

and the cash payment resulting from the 

settlement of credit events that would 

occur between the trade date and the 

expiry into the payoff amount at expiry 

in the CDS Option price definition. In 

addition, consistent with the Bloomberg 

Model, LCH SA also proposes to 

implement an adjusted spread in the log 

normal distribution by calibrating the 

spread to match the implied forward 

price, based on market quoted spreads, 

with certain assumptions made to 

improve the calibration in order to be 

able to price CDS Indices with a closed 

formula as the Bloomberg Model. 

Revised section 2.3 covers the market 

data for CDS and CDS Options. Section 

2.3.1 describes the market data LCH SA 

uses to build the database for singlename CDS covering the 10-year lookback period, which is the same as the 

description in the existing CDSClear 

Margin Framework with very minor 

technical edits to improve headings and 

to correct typographical errors. 

New section 2.3.2 addresses implied 

volatility in the pricing of CDS Options. 

LCH SA proposes to rely on the 

stochastic volatility inspired or ‘‘SVI’’ 

model to construct volatility surfaces 

and to use the model to price or reprice 

a CDS Option as well as to interpolate 

the various implied volatilities obtained 

from the Bloomberg Model described 

above in a consistent manner. The 

choice of the SVI model is based upon 

considerations that the model is an 

appropriate fit with the historical data 

and that it guarantees a volatility surface 

free of static arbitrage (such as calendar 

and butterfly arbitrage) if the 

appropriate parameters are selected. 

New section 2.3.3 describes the 

sources of historical data for CDS 

Option prices used by LCH SA to 

construct the database covering the 10- 

year look-back period. These sources 

consist of Markit’s history of composite 

prices and specific dealers’ history of 

prices. LCH SA will then use this data 

to extract historical implied volatility. 

In order to ensure that only SVI 

paramertizations that model the shape 

of the volatility curves well would be 

used in the construction of the time 

series, LCH SA would use a pre-defined 

coefficient of determination to measure 

how well the data fits the statistical 

model. Section 2.3.3 also describes 

other data to be used for purposes of 

constructing historical implied volatility 

in the case of missing at-the-money 

(‘‘ATM’’) volatility and SVI data points 

in the historical time series. If an option 

price cannot be obtained through 

members’ contribution (as described 

below) or Markit, LCH SA may use the 

price from the then on-the-run series or 

use a proxy to determine the ATM 

volatility returns from other similar 

options or from the index spread 

returns. 

Finally, new section 2.3.4 provides 

the source of new daily pricing data for 

CDS Options that will be used to update 

implied volatility on a daily basis. 

Similar to the current end-of-day pricing 

mechanism for CDS, LCH SA will 

require members to contribute prices on 

options for all strikes that are a multiple 

of five bps for iTraxx Europe Main or 25 

bps for iTraxx Europe Crossover of a 


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given expiry when the members have at 

least an open position on one strike for 

that expiry. Members’ contributed 

prices will be used for marking the 

options book if a quorum of three 

distinct contributions (underlying, 

expiry, strike) is recorded per option. 

Otherwise, LCH SA will fall back to 

Markit’s composite prices or use predefined rules to fill in missing data. 

b. Total Initial Margin 

A new Section 3 is created to provide 

the total initial margin framework. New 

section 3.1 provides a summary of the 

total initial margin framework, 

including a brief description of each of 

the seven components of the total initial 

margin. 

New section 3.2 provides an overview 

of the risks captured by each margin 

component and the additional margin 

charges, as well as cash-flow specific 

considerations and adjustments made to 

the margin framework specific to U.S. 

dollar denominated CDS contracts. This 

re-organized overview is substantively 

consistent with the description in 

existing section 3.1.1 of the CDSClear 

Margin Framework except for the 

addition of the new vega margin which 

is proposed in connection with the 

clearing of CDS Options. 

i. Self-Referencing Margin 

New Section 3.3 sets forth selfreferencing margin, a component of the 

total initial margin, for both CDS and 

CDS Options. In the case of CDS, selfreferencing margin is designed to cover 

the specific wrong way risk relating to 

a Clearing Member selling protection on 

itself through a CDS index or a client 

selling protection on the Clearing 

Member. Self-referencing margin 

reflects the P&L impact resulting from 

the Clearing Member defaulting on a 

sold-protection position in CDS 

referencing its own name with zero 

recovery. In the case of CDS Options, 

the P&L impact resulting from a 

Clearing Member defaulting on a soldprotection position in CDS referencing 

its own name can be calculated by 

taking the difference between the 

current option value and the option 

value incorporating a loss amount in the 

underlying CDS index. 

ii. Spread Margin 

New Section 3.4 sets forth spread 

margin for both CDS and CDS Options. 

There is no change proposed to the 

spread margin calculation for CDS, 

which would continue to be calculated 

using a value-at-risk model to build a 

distribution of potential losses from 

simulated scenarios based on the joint 

credit spread and volatility variations 

observed in the past. LCH SA then 

determines the expected shortfall based 

on a quantile of the worst losses that 

could happen in the case of unfavorable 

credit spread and volatility fluctuations 

within each 5-day scenario and takes 

the difference in P&Ls of each portfolio 

between the average of the prices 

beyond the 99.7 percent quantile of the 

portfolio and the current mark-to-market 

price of the portfolio as the expected 

shortfall. In addition, because the 

European Market Infrastructure 

Regulation (EMIR) limits margin 

reduction from portfolio margining to 

no greater than 80 percent of the sum of 

the margins for each product calculated 

on an individual basis, LCH SA would 

determine the spread margin to be the 

maximum between the expected 

shortfall of the portfolio and 20 percent 

of the sum of the expected shortfalls 

across instruments. 

The methodology for calculating 

spread margin would be the same for 

CDS Options, with two adjustments. 

First, in addition to simulated credit 

spreads, simulated volatilities would be 

calculated by defining a shifted 

volatility curve for each option expiry 

date. Both simulated credit spreads and 

simulated volatilities would be used to 

produce simulated option values as an 

input in the value-at-risk model to 

generate the expected shortfall. Second, 

in order to properly account for the 

impact of CDS Options which expire 

within the 5-day margin period of risk, 

LCH SA proposes to add to the Section 

3.4 spread margin provisions regarding 

an assessment of whether a CDS Option 

would be exercised on expiry by 

considering the present value of an 

option on the date of expiry. If the 

assessment determines that the option 

would be exercised, LCH SA would take 

the resulting index CDS position into 

account in the expected shortfall 

calculation for the following days 

within the margin period of risk. 

LCH SA is also proposing to move the 

discussion of margin impact related to 

clearing CDX IG/HY contracts to Section 

3.4 without any substantive change and 

to delete the current Section 3 on ‘‘CDX 

IG/HY Specificity’’ in the CDSClear 

Margin Framework. This reorganization 

of the CDSClear Margin Framework is 

intended to streamline the presentation 

because the same spread margin 

methodology that applies to European 

CDS contracts would equally apply to 

U.S. dollar denominated contracts, with 

certain considerations given to the use 

of U.S. interest rate benchmarks, FX 

adjustment, use of shifted FX rate for 

computing historical expected 

shortfalls, and an FX haircut, as 

described in Section 3 of the current 

CDSClear Margin Framework. 

iii. Short Charge 

New Section 3.5 sets forth short 

charge for both CDS and CDS Options, 

which replaces the former Section 4.1. 

As with the existing Framework, the 

purpose of the short charge is to address 

the jump-to-default risk, i.e., the P&L 

impact, when liquidating a defaulting 

member’s portfolio, as a result of one or 

more reference entities in the portfolio 

experiencing a default. The definition of 

the short charge remains the greater of 

(x) the ‘‘global short charge,’’ derived 

from the Clearing Member’s largest, or 

‘‘top,’’ net short exposure (in respect of 

any CDS contracts) and its top net short 

exposure amongst the three ‘‘riskiest’’ 

reference entities (in respect of any 

entity type) that are most probable to 

default in its portfolio, and (y) a ‘‘high 

yield short charge,’’ (‘‘HY short charge’’) 

derived from a member’s top net short 

exposure (in respect of high yield CDS) 

and its top two net short exposures 

amongst the three ‘‘riskiest’’ reference 

entities (in the high yield category) in its 

portfolio. In addition, because wrong 

way risk margin considers the P&L 

impact as a result of the Clearing 

Member’s top two net short exposures 

in respect of senior financial CDS, it is 

relevant to calculate a financial short 

charge to reflect the jump-to-default P&L 

impact resulting from the default of the 

two financial entities with the largest 

net short exposures. 

The steps for determining the net 

short exposure and default probability 

per entity also remain the same with 

respect to CDS portfolios. LCH SA 

would define the net short exposure at 

the portfolio level, aggregating net 

notional by entity, applying a recovery 

rate and subtracting the variation 

margin already collected with respect to 

each entity, either as a single name or 

as part of an index. Because there are 

various transaction types and contract 

terms based on different ISDA 

definitions, LCH SA would calculate 

each reference entity’s net exposure 

based on transaction types and contract 

terms across various possible scenarios, 

sum the exposures together according to 

the scenarios, and retain the worst 

scenario as the reference entity’s net 

short exposure. 

With respect to the determination of 

the short exposure for CDS Options, 

LCH SA believes that it would be 

appropriate to consider the P&L impact 

of a credit event experienced by a 

constituent of an index CDS underlying 

the CDS Option on the value of the 

option. Rather than repricing the option 

each day based on the spread level of 


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the underlying index and the ATM 

volatility level, LCH SA proposes to 

adopt an approximation approach to 

define the change in the option price 

relative to the total loss in the 

underlying index so as to expedite the 

calculation. The amount of such change 

would represent the impact on the 

option premiums as a function of the 

loss amount to be delivered at the 

option expiry if the option is exercised. 

Such change in option price would then 

be calibrated on a loss interval for each 

eligible option as a polynomial function 

and the calculation of this loss function 

would be performed at the option 

instrument level. 

The total short exposures with respect 

to each reference entity would be the 

sum of (i) the net short exposure for the 

CDS contracts referencing such entity 

and (ii) the losses resulting from the 

CDS Options on index CDS with such 

entity as a constituent. A total short 

exposure will be calculated for each 

entity except for an entity experiencing 

a credit event or an entity that is a 

member or member’s affiliate with 

respect to which a self-referencing 

margin is imposed. LCH SA will then be 

able to select the entity or entities for 

purposes of calculating the global short 

charge, HY short charge, and financial 

short charge. 

In order to accommodate the addition 

of CDS Options to CDSClear’s clearing 

services, LCH SA proposes to make 

certain adjustments to the short charge 

calculation. First, when calculating the 

total short exposure for each reference 

entity, including an entity that is a 

constituent of an index CDS underlying 

an option, the total short exposure 

would be calculated for each day within 

the 5-day margin period of risk using a 

simulated credit spread and ATM 

volatility data for both CDS and CDS 

options, instead of using the current 

spread as is the case for CDS only in the 

existing Framework. 

Second, after entities are selected for 

calculating the global short charge, HY 

short charge and financial short charge, 

if a portfolio includes CDS Options, as 

a result of the non-linearity of options 

products, the total short exposure would 

not be the sum of the P&L impacts of 

each individual entity’s default. 

Therefore, LCH SA proposes to calculate 

each of the global short charge, HY short 

charge and financial short charge by 

considering the combined P&L impacts 

of simultaneous defaults of the selected 

entities. 

Third, because the total short 

exposure for each reference entity 

would be calculated using a simulated 

credit spread and ATM volatility data 

for both CDS and CDS Options, the 

global short charge, HY short charge and 

financial short charge derived from the 

selected entities’ total short exposures 

would represent the jump-to-default risk 

and the market risk (i.e., spread moves) 

from both the CDS contracts and the 

CDS Options contracts at the portfolio 

level on each day within the 5-day 

margin period of risk in the simulated 

scenario. In order to calculate the short 

charge margin that reflects the P&L 

impact of the jump-to-default risk only 

at the portfolio level and the spread 

margin that reflects the P&L impact that 

comes from spread and ATM volatility 

moves, LCH SA would compare three 

expected shortfall amounts at the 

portfolio level: (i) The expected shortfall 

reflecting the P&Ls consisting of spread 

margin, the global short charge, the HY 

short charge and the financial short 

charge (ES1), (ii) the expected shortfall 

reflecting the P&Ls consisting of spread 

margin, global short charge and HY 

short charge (ES2), and (iii) the expected 

shortfall reflecting the P&Ls consisting 

of spread margin (ES3). If ES1 exceeds 

ES2, the excess amount would be the 

result of the financial short charge, 

which is the jump-to-default component 

of the wrong way risk and should be 

allocated to the wrong way risk margin. 

If ES2 exceeds ES3, the excess amount 

would represent the jump to default risk 

and should be allocated to the short 

charge margin. In addition, as stated 

above, EMIR limits the effect of margin 

reduction from portfolio margining to 

no greater than 80 percent of the sum of 

the margins for each product calculated 

on an individual basis. Thus, LCH SA 

would also calculate an expected 

shortfall reflecting the P&L impact of the 

spread and ATM volatility moves (ES4) 

at a product level and then use 20 

percent of ES4 as the minimum floor for 

the spread margin. 

Finally, new Section 3.5 will also 

consider the impact of option expiry on 

the P&L as part of the short charge 

calculation. In this respect, LCH SA 

would consider two cases: (i) The 

option exercise decision occurs before 

the occurrence of two credit events, and 

therefore, the credit events would have 

no impact on the option exercise 

decision and would only impact the 

P&L if the option is exercised upon 

expiry; and (ii) the two credit events 

occur before the option exercise 

decision and therefore, would have 

impact on the option exercise. LCH SA 

would use the worst case in the short 

charge calculation. 

iv. Interest Rate Risk Margin/Recovery 

Risk Margin/Wrong-Way Risk Margin/ 

Vega Margin 

New Section 3.6 sets forth interest 

rate risk margin for both CDS and CDS 

Options, which replaces the former 

Section 7 in the existing CDSClear 

Margin Framework. The methodology 

for calculating interest rate risk margin 

remains the same, except to provide for 

repricing CDS Option positions using 

the same ‘‘bump’’ parameters up and 

down computed by taking the 99.7 

quantile of the interest rate return based 

on the same sample of dates in the 

spread historical database. 

New Section 3.7 sets forth recovery 

rate risk margin for CDS, which replaces 

Section 6 in the existing CDSClear 

Margin Framework. The methodology 

for calculating recovery rate risk margin 

is the same as the existing Framework. 

Because recovery rate risk margin 

applies to only single-name CDS, no 

adjustment or change is necessary to 

accommodate the addition of CDS 

Options to the CDSClear services 

because the options are on index CDS. 

New Section 3.8 sets forth wrong way 

risk margin, which replaces Section 5 in 

the existing CDSClear Margin 

Framework. The methodology for 

calculating wrong way risk margin is the 

same as the existing Framework with 

minor revisions to streamline the 

description and to improve readability. 

New Section 3.9 sets forth a new 

margin component, i.e., vega margin, 

which would apply to CDS Options 

only. Because LCH SA uses ATM 

options to calculate volatility returns in 

all volatility scenarios, the derived 

expected shortfall would not fully 

capture the risk of volatility changes in 

the options premium relative to the 

strikes, i.e., the skew risk and the risk 

of changes in the volatility of volatility. 

Therefore, LCH SA is proposing to add 

vega margin to the total initial margin in 

order to capture the skew risk and the 

volatility of volatility risk. The vega 

margin would first calculate the risk of 

skew and volatility of volatility 

independently by estimating option 

premium changes when the skew is 

shifted by an extreme move, which is 

calibrated as a quantile of the 

distribution of each parameter in the 

historical data set gathered by LCH SA, 

for each time series of an available 

parameter. LCH SA would then define 

shifts of the skew by multiplying a 

standard deviation of the returns of 

historical skews by a percentile for a 

given probability threshold. Then, LCH 

SA would also consider similar shocks 

on the volatility of volatility alone. 

Finally, LCH SA would also consider 


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scenarios of combined risk of skew and 

volatility of volatility and choose the 

worst P&L for the index family 

produced in these scenarios as the total 

vega margin charge. 

c. Additional Margins 

LCH SA proposes to create a new 

Section 4 in the CDSClear Margin 

Framework, which would cover (i) 

liquidity and concentration risk margin 

from Section 8 of the existing CDSClear 

Margin Framework, (ii) accrued coupon 

liquidation risk margin from Section 9 

of the existing CDSClear Margin 

Framework, and (iii) credit event margin 

from Section 10 of the existing 

CDSClear Margin Framework. 

i. Liquidity and Concentration Risk 

Margin 

New Section 4.1 sets forth liquidity 

and concentration risk margin, which is 

moved from Section 8 of the existing 

CDSClear Margin Framework. Liquidity 

and concentration risk margin is 

designed to mitigate the P&L impact as 

a result of an illiquid or concentrated 

position in a defaulting member’s 

portfolio. The methodology for 

calculating liquidity and concentration 

risk margin for CDS contracts is the 

same as the existing Framework with 

minor revision to streamline the 

description and to improve readability. 

In order to accommodate the addition of 

CDS Options to the existing clearing 

services, LCH SA proposes changes to 

the existing liquidity and concentration 

risk margin methodology to cover 

portfolios containing CDS Options. 

To calculate the liquidity charge for 

portfolios including CDS Options, LCH 

SA would consider the options 

separately from CDS in the portfolio. 

Given that the market will require 

options to be liquidated as a deltahedged package, LCH SA would deltahedge the positions underlying the 

options and most likely auction the 

options as a package separate from the 

remainder of the portfolio. LCH SA will 

attempt to source the hedges from the 

CDS part of the defaulting member’s 

portfolio using a delta hedging 

algorithm to ensure minimal hedging 

costs before sourcing the hedges from 

the market. 

After the options package is deltahedged, from the bidders’ perspective, 

the pricing of the auction package 

would consist of hedging the vega of the 

delta-neutral options package at 

different resolutions consecutively until 

the portfolio is fully unwound. The 

cumulative costs incurred in the 

successive vega hedging would reflect 

the liquidity charge for the options. 

The liquidity charge for the entire 

portfolio will be the sum of the liquidity 

charge computed for the CDS 

component of the portfolio and the 

liquidity charge computed for the 

options component of the portfolio. 

ii. Accrued Coupon Liquidation Risk 

Margin 

New Section 4.2 sets forth accrued 

coupon liquidation risk margin for both 

CDS and CDS Options. The accrued 

coupon liquidation risk margin with 

respect to CDS remains the same as 

section 9 of the existing CDSClear 

Margin Framework with minor edits to 

improve clarity and readability. In 

addition, changes are proposed to 

address the accrued coupon liquidation 

risk for CDS Options. Because accrued 

coupon liquidation risk margin is 

designed to cover the accrued coupon 

payment during the 5-day liquidation 

period, LCH SA would be exposed to a 

coupon payment risk for an option only 

if the option expiry falls within the 5- 

day liquidation period and the option is 

exercised. Therefore, accrued coupon 

for options contracts with an expiry 

more than 5 days away will be zero and 

accrued coupon for options contracts 

with expiry falling within the 5-day 

liquidation period will be the accrued 

coupon for 5 days if the options are 

exercised. LCH SA would consider the 

option exercise decision based on the 

current spread level +/¥ 1⁄2 of the bidoffer on the underlying to reflect the 

cost of monetizing an in-the-money 

option. 

iii. Credit Event Margin 

New Section 4.3 sets forth credit 

event margin, which is moved from 

section 10 of the existing CDSClear 

Margin Framework. The overall 

approach to the calculation of the credit 

event margin remains the same with 

certain revisions to streamline the 

presentation and to improve clarity and 

readability. With respect to ‘‘hard’’ 

credit events, because the recovery rate 

is unknown before the auction occurs, 

LCH SA would impose credit event 

margin to cover an adverse 25 percent 

absolute recovery rate move from the 

credit event determination date to, and 

including, the auction date. After the 

auction, when the recovery rate is 

known, Credit Event Margin is no longer 

required, and cash flows are exchanged 

in advance through the Variation 

Margin to extinguish any risk of the 

future payment not being made. 

However, because of the addition of 

CDS Options, LCH SA proposes a 

number of changes to the calculation of 

credit event margin. First, if several 

credit events occur, LCH SA proposes to 

calculate the credit event margin with 

respect to each affected CDS and CDS 

Option contract by considering adverse 

recovery moves that could be a 

combination of upwards, downwards 

and flat on the different entities 

depending on the portfolio, instead of 

summing the credit event margin 

covering adverse 25 percent adverse 

recovery rate move for each reference 

entity as in the case of linear CDS. The 

aggregation of the P&L at the affected 

CDS and CDS Option contracts level 

would be the credit event margin at the 

portfolio level. After the credit event 

margin is calculated for each portfolio, 

the combination of adverse recovery rate 

moves retained for a particular Clearing 

Member’s portfolio would also be used 

in the spread margin calculation in 

order to virtually shift the strikes of all 

option contracts experiencing the credit 

event. Second, currently, LCH SA 

separates credit event margin 

calculations with respect to the portfolio 

of a Clearing Member that is the 

protection seller of the CDS 

experiencing a credit event and the 

portfolio of a Clearing Member that is 

the protection buyer of the CDS 

experiencing a credit event. The 

protection seller would be required to 

pay a credit event margin and the 

protection buyer would pay a so-called 

‘‘IM Buyer’’, which corresponds to a 

margin charged to the buyer in the event 

of a credit event and is calculated in the 

same way as the calculation of the credit 

event margin with the only difference 

being the change in the direction of the 

shocks. With the addition of CDS 

Options, LCH SA proposes to use one 

terminology ‘‘credit event margin’’ 

calculated using the same methodology 

as the existing credit event margin 

calculation with respect to a Clearing 

Member’s portfolio containing a 

contract affected by the credit event 

regardless of whether the Clearing 

Member is a protection buyer or 

protection seller. 

Finally, with respect to restructuring 

events or so-called ‘‘soft’’ credit events, 

because different auctions may be held 

depending on the maturity of the 

contracts and therefore, the recovery 

rate could be different across all the 

contracts with various maturity dates, 

LCH SA proposes to consider each 

maturity separately instead of netting all 

positions with the same reference entity. 

For each given reference entity 

experiencing a restructuring event with 

respect to a given maturity, the 

calculation of the credit event margin is 

similar to that used for hard credit 

events. 


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Federal Register / Vol. 82, No. 160 / Monday, August 21, 2017 / Notices 39627 

d. Cash Flows, Contingency Variation 

Margin and Extraordinary Margin 

New Sections 5, 6 and 7 set forth cash 

flow exchanges (in the form of variation 

margin, price alignment interest, 

quarterly coupon payments or upfront 

payments), contingency variation 

margin, and extraordinary margin. 

These sections are moved from Sections 

11, 12 and 3.4 of the existing CDSClear 

Margin Framework without substantive 

change and with minor revisions to 

eliminate redundancy and improve 

clarity and readability. 

e. Appendix 

The new Section 8 Appendix sets 

forth the settlement agent and FX 

provider, FX haircut and quanto with 

respect to CDX IG/HY contracts. These 

are moved from Section 3.1.2, 3.3.2 and 

3.3.3 of the existing CDSClear Margin 

Framework without substantive change. 

(ii). Default Fund Methodology 

LCH SA also proposes to modify its 

Default Fund Methodology to 

incorporate terms for CDS Options and 

to make certain clarifying and 

conforming changes to the Default Fund 

Methodology. 

Section 1 of the Default Fund 

Methodology, which outlines the stress 

risk framework, would be amended in 

Sections 1.1, 1.2, 1.3, and 1.4 to make 

formatting changes and clarifying 

changes to the text for readability. 

Section 2 of the Default Fund 

Methodology sets forth the methodology 

used to calculate default fund, which is 

designed to cover the potential impact 

of the default of two or more Clearing 

Members in stressed market conditions 

in excess of initial margin held by LCH 

SA. Section 2.1 currently provides an 

overview of the framework for such 

methodology. The fundamental piece of 

the methodology is to identify stress 

testing scenarios to introduce market 

moves in so-called ‘‘extreme but 

plausible’’ market conditions beyond 

those applied to the margin calculation. 

Such stress testing scenarios would then 

be applied to Clearing Members’ 

portfolios to calculate the P&L impacts 

and the sum of the two highest stress 

testing losses over initial margin 

(‘‘STLOIM’’) across all Clearing 

Members’ portfolios. From there, LCH 

SA adds a 10 percent buffer to be the 

size of the default fund. Because of the 

addition of CDS Options, LCH SA 

proposes to amend Section 2.1 to take 

into account the new vega margin 

designed to address the skew risk and 

volatility of volatility risk particular to 

CDS Options that are not covered in the 

spread margin calculation. As a result, 

a stressed vega margin (in addition to 

the existing stressed spread margin and 

stressed short charge) would be 

calculated under the stress test 

scenarios. LCH SA would then calculate 

stress test losses (i.e., the sum of the 

stressed spread margin, stressed short 

charge and stressed vega margin) over 

initial margin components designed to 

cover the market risk and default risk 

(i.e., the spread margin, short charge, 

wrong way risk margin and vega 

margin). Clarification changes are also 

made to the explanation of stressed 

spread margin and stress short charge. 

Section 2.2 of the Default Fund 

Methodology would be modified to 

separate the description of the 

methodology for calculating P&L from 

the description of the stress testing 

scenarios. The description of the stress 

scenarios would be retained in Section 

2.2 with certain clarifying changes for 

readability, and the description of the 

methodology for calculating the P&L for 

purposes of spread moves and short 

charge would be removed from Section 

2.2 and replaced with new Sections 2.3 

and 2.4. The various scenarios 

considered for the Default Fund 

Methodology would also be renumbered 

under new subsections 2.2.1 (Standard 

Scenarios), 2.2.2 (Dislocation 

Scenarios), 2.2.3 (SPAN Scenarios), 

2.2.4 (2× Lehman Scenarios), 2.2.5 

(Black Monday Scenario), 2.2.6 

(Theoretical Scenarios), 2.2.7 

(Theoretical 4× Bear Sterns Scenario), 

and 2.2.8 (Correlation Breakdown). A 

new set of scenarios would also be 

added in Section 2.2.9 (Volatility 

Scenarios), which considers movements 

in the implied ATM volatilities of index 

families, in both historical and 

theoretical stress scenarios. 

New Section 2.3 of the Default Fund 

Methodology sets forth the new 

calculation of the stressed spread 

margin component of the STLOIM. 

Consistent with the changes made to the 

CDSClear Margin Framework, the new 

calculation of stressed spread margin 

would consider ATM implied volatility 

moves for options and the stressed 

spread margin would be calculated in 

two scenarios: (i) Historical scenarios 

covering credit spread moves and ATM 

implied volatility movements in 

combination, and (ii) theoretical 

scenarios covering credit spread 

movements and ATM implied volatility 

moves independently. For CDS, only 

scenarios covering spread moves would 

be considered. 

New Section 2.4 of the Default Fund 

Methodology would set forth the 

stressed short charge component of the 

STLOIM calculation and would 

incorporate terms to account for the 

addition of CDS Options. The new 

stressed short charge calculation would 

follow the methodology of the short 

charge calculation as part of the total 

initial margin to take into account the 

non-linear nature of options, except that 

the number of default entities assumed 

is higher for stressed short charge than 

the number of defaults assumed for 

normal short charge. As under the 

existing Default Fund Methodology, the 

stressed short charge will cover the 

greater of (i) a ‘‘Global Stressed Short 

Charge,’’ which considers the entity 

having the largest exposure and the two 

highest exposures among the three 

entities most likely to default in the 

Clearing Member’s portfolio, (ii) a 

‘‘Financial Stressed Short Charge,’’ 

which considers the two entities having 

the largest exposure among senior 

financial entities and the highest 

exposure among the three senior 

financial entities most likely to default 

in the Clearing Member’s portfolio, and 

(iii) a ‘‘High Yield Stressed Short 

Charge,’’ which considers the two 

entities having the largest exposure 

among entities in the high yield index 

family and the two highest exposures 

among the three entities among the high 

yield entities most likely to default in 

the Clearing Member’s portfolio. 

New Section 2.5 of the Default Fund 

Methodology would add a new stressed 

vega margin component to the STLOIM 

calculation. As noted above with respect 

to the CDSClear Margin Framework, 

vega margin is included with respect to 

CDS Options to address skew risk and 

volatility of volatility risk. The stressed 

vega margin component of the STLOIM 

calculation would be calculated in the 

same manner as the vega margin 

component of the CDSClear Margin 

Framework, but would use a higher 

quantile than the regular vega margin 

calculation. 

New Section 2.6 of the Default Fund 

Methodology, entitled Exercise 

Management, would account for the 

impact of CDS Options which expire 

within the 5-day liquidation period. If 

the time to expiry with respect to an 

option in a defaulting member’s 

portfolio is less than or equal to five 

days, LCH SA would consider the 

impact of option exercise in four 

permutations for each stress scenario to 

account for the default and extreme 

spread moves occurring before or after 

option expiry. LCH SA would then 

select the permutation generating the 

largest loss for any particular scenario. 

Section 2.6.1 of the Default Fund 

Methodology then sets forth the 

calculations for the exercise decision in 

respect of CDS Options and 2.6.2 

describes the impact of the exercise 


asabaliauskas on DSKBBXCHB2PROD with NOTICES
39628 Federal Register / Vol. 82, No. 160 / Monday, August 21, 2017 / Notices 

4 17 CFR 240.17Ad–22. 

5 15 U.S.C. 78q–1(b)(3)(F). 

6 17 CFR 240.17Ad–22(b)(2), (b)(3), (e)(1), (e)(4), 

and (e)(6). 

7 17 CFR 240.17Ad–22(b)(22). 

8 17 CFR 240.17Ad–22(e)(4)(i). 

9 17 CFR 240.17Ad–22(e)(6)(i). 

10 17 CFR 240.17Ad–22(b)(3). 

11 17 CFR 240.17Ad–22(e)(4)(ii). 

decision. For options that are expiring, 

if the option is deemed exercised, the 

‘‘bumped’’ price will not be calculated 

in respect of the CDS option, but on the 

underlying index into which the CDS 

option would be exercised. With respect 

to these options exercised and 

converted to index CDS contracts, 

Section 2.6.3 of the Default Fund 

Methodology then provides that the 

resulting index contracts will lead to a 

change in the consideration of net short 

exposures and therefore, the global, 

financial and HY stressed net short 

exposures need to be calculated, which 

would affect the determination of the 

stressed short charge. 

New Section 2.7 would set forth the 

P&L scenarios that are considered as 

part of the Default Fund Methodology. 

New Section 2.7.1 would set forth the 

stressed spread margin calculation with 

respect to specific products. In the case 

of CDS Options, the product is 

identified with the index family and 

series of the underlying index, such that 

the option P&L for each product can be 

added to the P&L for linear contracts 

and offsets may be made between the 

two groups. If the P&L at the product 

level is positive, a haircut is applied. 

Sections 2.7.2 then provides for a 

stressed short charge that is a 

component of the stressed initial margin 

calculation in Section 2.7.3. Under 

Section 2.7.4, the stressed initial margin 

calculation is then compared across 

historical scenarios, theoretical spread 

scenarios, and theoretical implied 

volatility scenarios. 

Finally, the sections on Credit Quality 

Margin and Default Fund Additional 

Margin would be renumbered as new 

sections 3.1 and 3.2, respectively, and 

would be updated to incorporate terms 

for CDS Options and to account for the 

imposition of vega margin in respect of 

CDS Options. 

2. Statutory Basis 

LCH SA believes that the proposed 

rule change in connection with the 

clearing of CDS Options is consistent 

with the requirements of Section 17A of 

the Act and the regulations thereunder, 

including the standards under Rule 

17Ad–22.4 Section 17(A)(b)(3)(F) 5 of the 

Act requires, among other things, that 

the rules of a clearing agency be 

designed to promote the prompt and 

accurate clearance and settlement of 

securities transactions and derivative 

agreements, contracts, and transactions 

and to assure the safeguarding of 

securities and funds which are in the 

custody or control of the clearing agency 

or for which it is responsible. As noted 

above, the proposed rule change is 

designed to manage the risk arising from 

the clearing of CDS Options and to 

streamline the description of the 

existing margin framework and default 

fund methodology for CDS to take into 

account CDS Options and improve the 

organization and clarity of the CDSClear 

Margin Framework and Default Fund 

Methodology. 

LCH SA believes that the proposed 

changes to the CDSClear Margin 

Framework and the Default Fund 

Methodology satisfy the requirements of 

Rule 17Ad–22(b)(2), (b)(3), (e)(1), (e)(4) 

and (e)(6).6

Rule 17Ad–22(b)(2) requires a 

clearing agency to use margin 

requirements to limit its credit 

exposures to participants under normal 

market conditions and to use risk-based 

models and parameters to set margin 

requirements.7 Rule 17Ad–22(b)(3) 

requires each clearing agency acting as 

a central counterparty for security-based 

swaps to maintain sufficient financial 

resources to withstand, at a minimum, 

a default by the two participant families 

to which it has the largest exposure in 

extreme but plausible market conditions 

(the ‘‘cover two standard’’). Rule 17Ad– 

22(e)(4) requires a covered clearing 

agency to effectively identify, measure, 

monitor, and manage its credit 

exposures to participants and those 

arising from its payment, clearing and 

settlement processes by maintaining 

sufficient financial resources,8 and Rule 

17Ad–22(e)(6) requires a covered 

clearing agency that provides central 

counterparty services to cover its credit 

exposures to its participants by 

establishing a risk-based margin system 

that meets certain minimum 

requirements.9

As described above, LCH SA proposes 

to amend its margin framework to 

manage the risks associated with 

clearing CDS Options. Specifically, the 

proposed rule change amends the 

existing spread margin and short charge 

components of the total initial margin to 

take into account implied volatility in 

the calculation of the spread margin and 

short charge as well as updating interest 

rate risk margin, recovery rate risk 

margin and wrong-way risk margin 

components of total initial margin to 

incorporate CDS Options. In addition, 

the proposed rule change adds the new 

vega margin to account for the skew risk 

and volatility of volatility risk specific 

to CDS Options. These changes are 

designed to use a risk-based model to 

set margin requirements and use such 

margin requirements to limit LCH SA’s 

credit exposures to participants in 

clearing CDS and/or CDS Options under 

normal market conditions, consistent 

with Rule 17Ad–22(b)(2). LCH SA also 

believes that its risk-based margin 

methodology takes into account, and 

generates margin levels commensurate 

with, the risks and particular attributes 

of each of the CDS and CDS Options at 

the product and portfolio levels, 

appropriate to the relevant market it 

serves, consistent with Rule 17Ad– 

22(e)(6)(i) and (v). In addition, LCH SA 

believes that the margin calculation 

under the revised CDSClear Margin 

Framework would sufficiently account 

for the 5-day liquidation period for 

house account portfolio and 7-day 

liquidation period for client portfolio 

and therefore, is reasonably designed to 

cover LCH SA’s potential future 

exposure to participants in the interval 

between the last margin collection and 

the close out of positions following a 

participant default, consistent with Rule 

17Ad–22(e)(6)(iii). LCH SA also believes 

that the new pricing methodology with 

respect to CDS Options, based on 

widely accepted and used Bloomberg 

Model with appropriate adjustments, as 

supplemented by methodology for 

circumstances in which pricing data are 

not readily available, would generate 

reliable data set to enable LCH SA to 

calculate spread margin, consistent with 

Rule 17Ad–22(e)(6)(iv). 

Further, Rule 17Ad–22(b)(3) requires 

a clearing agency acting as a central 

counterparty for security-based swaps to 

establish policies and procedures 

reasonably designed to maintain the 

cover two standard.10 Similarly, Rule 

17Ad–22(e)(4)(ii) requires a covered 

clearing agency that provides central 

counterparty services for security-based 

swaps to maintain financial resources 

additional to margin to enable it to 

cover a wide range of foreseeable stress 

scenarios that include, but are not 

limited to, meeting the cover two 

standard.11 LCH SA believes that its 

Default Fund Methodology, with the 

modifications described herein, will 

appropriately incorporate the risk of 

clearing CDS Options, which, together 

with the proposed changes to the 

CDSClear Margin Framework, will be 

reasonably designed to ensure that LCH 

SA maintains sufficient financial 

resources to meet the cover two 


asabaliauskas on DSKBBXCHB2PROD with NOTICES
Federal Register / Vol. 82, No. 160 / Monday, August 21, 2017 / Notices 39629 

12 17 CFR 240.17Ad–22(b)(3) and (e)(4)(ii). 

13 15 U.S.C. 78q–1(b)(3)(F). 

14 15 U.S.C. 78q–1(b)(3)(I). 15 17 CFR 200.30–3(a)(12). 

standard, in accordance with Rule 

17Ad–22(b)(3) and (e)(4)(ii).12

LCH SA also believes that the 

proposed rule change is consistent with 

Rule 17Ad–22(e)(1), which requires 

each covered clearing agency’s 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. As described 

above, the proposed rule change would 

streamline the description of margin 

methodology and default fund sizing 

methodology in CDSClear Margin 

Framework and Default Fund 

Methodology. LCH SA believes that 

these change would improve the 

organization and clarity of these policies 

and provide for a clear and transparent 

legal basis for LCH SA’s margin 

requirements and default fund 

contributions, consistent with Rule 

17Ad–22(e)(1). 

For the reasons stated above, LCH SA 

believes that the proposed rule change 

with respect to CDSClear Margin 

Framework and Default Fund 

Methodology in connection with 

clearing of CDS Options are consistent 

with the requirements of prompt and 

accurate clearance and settlement of 

securities transactions and derivative 

agreements, contracts and transactions, 

and assuring the safeguarding of 

securities and funds in the custody or 

control of the clearing agency or for 

which it is responsible, in accordance 

with 17(A)(b)(3)(F) of the Act.13

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 LCH SA does not 

believe that the proposed rule change 

would impose burdens on competition 

that are not necessary or appropriate in 

furtherance of the purposes of the Act. 

Specifically, the proposed changes to 

CDSClear Margin Framework and 

Default Fund Methodology would apply 

equally to all Clearing Members whose 

portfolio includes CDS and/or CDS 

Options. Because the margin 

methodology and default fund sizing 

methodology are risk-based, consistent 

with the requirements in Rule 17Ad– 

22(b)(2) and (e)(6), depending on a 

Clearing Member’s portfolio, each 

Clearing Member would be subject to a 

margin requirement and default fund 

contribution commensurate with the 

risk particular to its portfolio. Such 

margin requirement and default fund 

contribution impose burdens on a 

Clearing Member but such burdens 

would be necessary and appropriate to 

manage LCH SA’s credit exposures to its 

CDSClear participants and to maintain 

sufficient financial resources to 

withstand a default of two participant 

families to which LCH SA has the 

largest exposures in extreme but 

plausible market conditions, consistent 

with the requirements under the Act as 

described above. Therefore, LCH SA 

does not believe that the proposed rule 

change would impose a burden on 

competition not necessary or 

appropriate in furtherance of the 

purposes of the Act. 

C. Clearing Agency’s Statement on 

Comments on the Proposed Rule 

Change Received From Members, 

Participants or Others 

Written comments relating to the 

proposed rule change have not been 

solicited or received. LCH SA will 

notify the Commission of any written 

comments received by LCH SA. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the self-regulatory organization 

consents, the Commission will: 

(A) By order approve or disapprove 

such proposed rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

LCH SA–2017–007 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE., 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–LCH SA–2017–007. 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 Web site (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 Web site 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 Web 

site at http://www.lch.com/assetclasses/cdsclear. 

All comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–LCH SA–2017–007 and 

should be submitted on or before 

September 11, 2017. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.15

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–17546 Filed 8–18–17; 8:45 am] 

BILLING CODE 8011–01–P 


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