41438 Federal Register / Vol. 82, No. 168 / Thursday, August 31, 2017 / Notices 

82 17 CFR 240.17Ad–22(e)(7)(vii). 

83 Id. 

84 15 U.S.C. 78q–1. 

85 In approving the Proposed Rule Changes, the 

Commission considered the proposals’ impact on 

efficiency, competition, and capital formation. 15 

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

86 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Capitalized terms used but not defined herein 

shall have the meaning specified in the Rule Book, 

Clearing Supplement, Procedures, and Dispute 

Resolution Protocol, as applicable. 

including measuring, monitoring, and 

managing their settlement and funding 

flows on an ongoing and timely basis, 

and their use of intraday liquidity by 

performing a Model Validation of their 

liquidity risk Models not less than 

annually or more frequently as may be 

contemplated by their risk management 

framework.82

As discussed above, the Framework 

would describe the Clearing Agencies’ 

process for determining which Models 

they should validate, including liquidity 

risk Models. After determining which 

Models to validate, the Clearing 

Agencies would use the Model 

Validation processes for their margin 

systems and related Models, which 

would be performed not less than 

annually. In certain cases, the Clearing 

Agencies may determine extra Model 

Validation activities are warranted 

based on previous Model Validation 

work and findings, changes in market 

conditions, or because a particular 

Model warrants extra validation. 

Because the proposal is designed to 

meet the requirements of Rule 17Ad– 

22(e)(7)(vii) by establishing the 

proposed Framework to help measure, 

monitor, and manage the Clearing 

Agencies’ settlement and funding flows 

on an ongoing and timely basis, and the 

Clearing Agencies’ use of intraday 

liquidity by performing a Model 

Validation of their liquidity risk Models 

not less than annually, the Commission 

believes the Proposed Rule Changes are 

consistent with Rule 17Ad–22(e)(7)(vii) 

under the Act.83

III. Conclusion 

On the basis of the foregoing, the 

Commission finds that the Proposed 

Rule Changes are consistent with the 

requirements of the Act, in particular 

the requirements of Section 17A of the 

Act 84 and the rules and regulations 

promulgated thereunder. It is therefore 

ordered, pursuant to Section 19(b)(2) of 

the Act, that proposed rule changes SR– 

DTC–2017–008, SR–FICC–2017–014, 

and SR–NSCC–2017–008 be, and hereby 

are, approved.85

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.86

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–18448 Filed 8–30–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81487; File No. SR–LCH 

SA–2017–006] 

Self-Regulatory Organizations; LCH 

SA; Notice of Filing of Proposed Rule 

Change Relating to Options on Index 

Credit Default Swaps 

August 25, 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 

18, 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) 

CDS Clearing Rule Book (the ‘‘Rule 

Book’’), (ii) CDS Clearing Supplement 

(the ‘‘Clearing Supplement’’), (iii) CDS 

Clearing Procedures (the ‘‘Procedures’’), 

and (iv) CDS Dispute Resolution 

Protocol (the ‘‘Dispute Resolution 

Protocol’’), 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.3

II. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

In its filing with the Commission, 

LCH SA included statements concerning 

the purpose of and basis for the 

proposed rule change and discussed any 

comments it received on the proposed 

rule change. The text of these statements 

may be examined at the places specified 

in Item IV below. LCH SA has prepared 

summaries, set forth in sections A, B, 

and C below, of the most significant 

aspects of these statements. 

A. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

1. Purpose 

The purpose of the proposed rule 

change is to revise LCH SA’s rules and 

procedures to allow LCH SA to clear 

options on index CDS. An option on 

index CDS is a contract that gives the 

option buyer the right (and not the 

obligation) to enter into a specified 

index CDS contract (i.e., the underlying) 

with the option seller at a predefined 

exercise price called the strike. Upon 

the launch of clearing options on index 

CDS, LCH SA will provide central 

counterparty services for options on 

index CDS that are accepted for clearing 

and become the option seller for each 

option buyer and the option buyer for 

each option seller with respect to an 

option on index CDS novated by LCH 

SA. 

The terms of the option contract on 

index CDS will provide the buyer the 

right to sell or buy protection on the 

underlying index CDS at expiry of the 

option. The index CDS resulting from 

the exercise of the option will be 

automatically cleared by LCH SA as the 

central counterparty. A credit event 

(including a restructuring event) may 

occur with respect to a constituent of an 

underlying index. If the credit event 

occurs before the option expiry, such 

credit event may affect the option 

buyer’s decision regarding whether to 

exercise the option upon expiry. On the 

other hand, if a credit event occurs after 

the buyer has exercised the option, a 

cleared index CDS contract has been 

created from the option exercise and the 

situation would be the same as a credit 

event occurring to any other index CDS 

contract currently cleared by LCH SA. 

Initially, LCH SA proposes to include 

European index CDS currently cleared 

by CDSClear as the underlying, i.e., CDS 

on Markit iTraxx Europe Index and 

iTraxx Crossover Index, and may 

subsequently extend the underlying to 

include other index CDS contracts 

cleared by LCH SA, such as CDS on 

iTraxx Senior Financial Index, CDX NA 

IG, and CDX NA HY, subject to 

additional regulatory approvals, if 

necessary. 

Each of the changes is described in 

further detail below. 


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i. Rule Book 

a. Changes to Definitions 

The Rule Book would be amended to 

add several new defined terms in order 

to accommodate the addition of options 

on index CDS to LCH SA’s CDSClear 

services. Specifically, LCH SA proposes 

to add a definition for ‘‘Index 

Swaptions’’ as transactions which give 

the buyer the right to enter into a CDS 

referencing a portfolio of Reference 

Entities specified in a CDS index with 

a seller. The defined term ‘‘Index 

Swaption Buyer’’ would be added in the 

Rule Book to mean a Clearing Member 

that is party to an Index Swaption 

Cleared Transaction as buyer, and the 

term ‘‘Index Swaption Seller’’ would be 

added in the Rule Book to mean a 

Clearing Member that is party to an 

Index Swaption Cleared Transaction as 

seller. The defined term ‘‘Index 

Swaption Cleared Transaction’’ would 

be added in the Rule Book, and defined 

by reference to the Supplement 

(described below), to mean a Cleared 

Transaction which gives Swaption 

Buyer the right to enter into a specified 

Underlying Index Transaction with 

Swaption Seller. The term ‘‘Index 

Swaption Cleared Transaction 

Confirmation’’ would also be added to 

the Rule Book, and defined by reference 

to the Clearing Supplement, to mean for 

any Index Swaption Cleared 

Transaction in respect of which the 

Underlying Index Transaction 

references a Series and versions of the 

Markit iTraxx Europe Index, the form of 

confirmation which incorporates the 

iTraxx Swaption Standard Terms 

Supplement, as completed by reference 

to the relevant transaction, or such other 

form confirmation as may be adopted 

from time to time in accordance with 

the terms of the Rule Book. For the 

avoidance of doubt, the extension of the 

CDS Clearing Service to the clearing of 

swaptions referencing indices other 

than the Markit iTraxx Europe Index 

would require additional amendments 

to the CDS Clearing Supplement. 

Amendments to the to the Rule Book, 

the Procedures, and other risk 

methodology documentation could also 

be required to reflect risk changes 

applicable to the clearing of such new 

products. The defined term ‘‘Index 

Swaption Clearing Service’’ would be 

added to refer to the CDS Clearing 

Service to which a Clearing Member 

would elect to be registered under in 

order to be permitted to submit Index 

Swaptions for clearing by LCH SA. The 

term ‘‘Premium’’ would also be added to 

the Rule Book and defined by reference 

to the 2006 International Swaps and 

Derivatives Association (‘‘ISDA’’) 

definitions, which are also incorporated 

into the Rule Book definitions, to 

describe the premium paid in respect of 

Index Swaptions and, relatedly, Article 

1.2.9.2 would be modified to specify 

that the payment of ‘‘Premium’’ to the 

relevant Index Swaption Seller is within 

the scope of obligations that LCH SA 

undertakes to perform as central 

counterparty. 

Definitions for ‘‘CDS Intraday 

Transaction,’’ which would mean a CDS 

which has been entered into between 

two ATSS Participants and submitted 

for clearing through an Approved Trade 

Source System, and ‘‘Index Swaption 

Intraday Transaction,’’ which would 

mean an Index Swaption which has 

been entered into between two ATSS 

Participants and submitted for clearing 

through an Approved Trade Source 

System, would be added to clarify the 

distinction for the novation process 

applicable to CDS Intraday Transactions 

and Index Swaption Intraday 

Transactions set forth in Article 3.1.6.1 

(described below). 

The term ‘‘Exercise Cleared 

Transaction’’ would be added to the 

Rule Book, and defined by reference to 

the Clearing Supplement, to mean each 

Index Swaption Cleared Transaction 

(including each Swaption Restructuring 

Cleared Transaction, as applicable) 

forming part of a matched pair as part 

of the creation of a Cleared Transaction 

in the context of the exercise process. A 

definition for ‘‘Swaption Restructuring 

Cleared Transaction’’ would be added to 

the Rule Book, and defined by reference 

to the Clearing Supplement, to mean a 

Cleared Transaction created as a result 

of a Restructuring Credit Event. The 

term ‘‘Exercise Notice’’ would also be 

added to the Rule Book, and defined by 

reference to the Clearing Supplement, as 

the notice of exercise (in whole or in 

part) given by the Swaption Buyer to the 

Swaption Seller in accordance with 

Section 13.2 (Procedure for Exercise) of 

the 2006 Definitions. The term ‘‘EMP 

Creation Period’’ would be added to the 

Rule Book, and defined by reference to 

the Clearing Supplement, to mean the 

period from (and including) the final 

Transaction Business Day of the 

calendar week immediately preceding 

the week in which the Expiration Date 

falls to (but excluding) the Transaction 

Business Day immediately preceding 

the Expiration Date. 

The Rule Book would also include a 

reference for the definition of 

‘‘Swaption Type,’’ which, as defined in 

the Clearing Supplement, would mean a 

class of Index Swaption Cleared 

Transactions that are identical as to 

their terms (including, without 

limitation, as to the terms of the 

Underlying Index Transaction to which 

such Index Swaption Cleared 

Transactions relates), except in respect 

of trade date, notional amount, 

Premium, and Premium Payment Date 

and identity of the relevant Swaption 

Buyer and Swaption Seller. 

The definition of ‘‘LCH Settlement 

Price’’ would be added to the Rule Book 

to account for the end-of-day pricing 

procedures added for Index Swaptions, 

as described below. 

The substance of certain existing 

defined terms in the Rule Book would 

also be modified to incorporate terms 

for Index Swaptions. The definitions of 

‘‘CCM Cleared Transaction’’ (i.e., a CDS 

or an Index Swaption between LCH SA 

and a CCM acting either in its own 

name and for its own account (in 

respect of a House Cleared Transaction) 

or as commissionaire in its own name 

and for the account of a Client (in 

respect of a Client Cleared Transaction)) 

and ‘‘FCM Cleared Transaction’’ (i.e., A 

CDS or an Index Swaption between LCH 

SA and an FCM Clearing Member as 

agent for the account of an FCM Client 

registered in the relevant FCM Client 

Trade Account of such FCM Clearing 

Member, or as principal for its own 

account, registered in the FCM House 

Trade Account of such FCM Clearing 

Member), would be amended to make 

clear that a CCM Cleared Transaction or 

an FCM Cleared Transaction, in 

addition to a CDS, would include an 

Index Swaption between LCH SA and a 

CCM or FCM Clearing Member, as 

applicable. The definition has been also 

amended to specify that a CCM Cleared 

Transaction or an FCM Cleared 

Transactions could also result from the 

creation of (x) an ‘‘Exercise Cleared 

Transaction’’ or (y) a ‘‘Swaption 

Restructuring Cleared Transaction,’’ as 

described above. The definition of ‘‘End 

of Day Contributed Price’’ would be 

amended to distinguish end of day 

pricing for CDS (which is based upon, 

among other things, price/spread data 

provided by the Index Publisher) and 

Index Swaptions (which would be based 

upon, among other things, a clearing 

price determined by LCH SA), as 

described below. The definition of 

‘‘House Trade Leg’’ would be amended 

to include any trade leg of an Index 

Swaption in respect of which a Clearing 

Member acts as Index Swaption buyer 

or Index Swaption seller. Similarly, the 

definition of ‘‘Client Trade Leg’’ would 

be modified to include any trade leg of 

an Index Swaption in respect of which 

a Client acts as Index Swaption buyer or 

Index Swaption seller. 

The following defined terms in 

Chapter 1, Section 1.1.1 would also 

include conforming changes for Index 


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Swaptions: ‘‘Cash Payment,’’ ‘‘CDS 

Buyer,’’ ‘‘CDS Clearing Documentation,’’ 

‘‘CDS Clearing Service,’’ ‘‘CDS Client 

Clearing Agreement,’’ ‘‘CDS Client 

Clearing Services,’’ ‘‘CDS Seller,’’ 

‘‘Extreme Market Developments,’’ 

‘‘Index Publisher,’’ ‘‘Intraday 

Transaction,’’ and ‘‘Payment Failure,’’ 

and ‘‘Product Family.’’ 

In addition to the foregoing changes, 

various other conforming and clarifying 

changes would be made throughout 

Title I (General Provisions & Legal 

Framework) to incorporate terms to 

accommodate Index Swaptions. Those 

conforming and clarifying changes are 

set forth in Articles 1.0.1.1, 1.0.1.3, 

1.1.2.1, 1.1.3.8, 1.1.3.9, 1.2.2.6, 1.2.2.11, 

1.2.9.2, 1.2.12.2, and 1.2.14.2. 

Separately, to provide additional 

clarification in respect of the crossborder aspects of its operations, LCH SA 

also proposes to include a definition for 

‘‘U.S. CCM’’ to mean a CCM that is not 

a Non-U.S. CCM. A ‘‘Non-U.S. CCM,’’ in 

turn, would be defined as a CCM that 

engages in securities business activities 

solely outside the United States, its 

territories or possessions (except as 

otherwise permitted under SEC 

regulation without triggering a 

requirement to be registered as a 

‘‘broker’’ or ‘‘dealer’’ under the 

Exchange Act) or, in the context of a 

Transaction that is not a security-based 

swap, a CCM that is organized under the 

laws of, or has its main center of 

business located in, a jurisdiction other 

than the United States, its territories or 

possessions. LCH SA also proposes to 

amend the definition of ‘‘U.S. CCM 

Client’’ to mean a CCM Client that is not 

a Non-U.S. CCM Client. A ‘‘Non-U.S. 

CCM Client’’ would mean a CCM Client 

that is organized under the laws of, or 

has its main center of business located 

in, a jurisdiction other than the United 

States, its territories or possessions. 

Finally, certain other changes to the 

following terms would be made to 

correct existing inconsistencies or to 

make clarifications: ‘‘Bank Recovery and 

Resolution Directive,’’ ‘‘Delegation’’, 

‘‘Insolvency Proceeding’’ and 

‘‘Settlement Finality Directive.’’ 

b. Membership 

Article 2.2.0.4 would be amended and 

Article 2.2.0.6 would be added to 

specify the procedures for an Applicant 

to register for the Index Swaption 

Clearing Service. Article 2.2.0.4 would 

be amended to reflect that the Product 

Family Form of a Select Member may be 

updated in accordance with Clause 6.1 

of the CDS Default Management Process, 

as described below. Article 2.2.0.6 

would also provide that an Applicant or 

existing Clearing Member may elect to 

register for, or terminate its registration 

from, the Index Swaption Clearing 

Service and, if applicable, that such 

registration will be deemed to occur in 

accordance with Clause 6.1 of the CDS 

Default Management Process. As a result 

of the addition of Index Swaptions, LCH 

SA also proposes to make conforming 

changes to Article 2.2.1.1 to reflect the 

addition of the Index Swaption Clearing 

Service. 

c. Novation of Contracts 

Article 3.1.6.1 would be amended to 

add a new Article 3.1.6.1(iv) to describe 

the novation process in respect of 

Original Transactions that are Index 

Swaption Intraday Transactions. 

Specifically, Article 3.1.6.1(iv) would 

provide that each Original Transaction 

which is an Index Swaption Intraday 

Transaction will be replaced by two 

Cleared Transactions: (a) A Cleared 

Transaction entered into between LCH 

SA (acting as Index Swaption seller in 

respect of such Cleared Transaction) 

and either: (x) In the event the Index 

Swaption buyer of the Original 

Transaction is a Clearing Member, such 

Clearing Member (acting as Index 

Swaption Buyer in respect of such 

Cleared Transaction); or (y) in the event 

the Index Swaption buyer of the 

Original Transaction is a Client, the 

relevant Nominated Clearing Member 

(acting as Index Swaption Buyer in 

respect of such Cleared Transaction), as 

applicable; and (b) a Cleared 

Transaction entered into between LCH 

SA (acting as Index Swaption buyer in 

respect of such Cleared Transaction) 

and either: (x) In the event the Index 

Swaption seller of the Original 

Transaction is a Clearing Member, such 

Clearing Member (acting as Index 

Swaption Seller in respect of such 

Cleared Transaction); or (y) in the event 

the Index Swaption seller of the 

Original Transaction is a Client, the 

relevant Nominated Clearing Member 

(acting as Index Swaption Seller in 

respect of such Cleared Transaction), as 

applicable. Various other conforming 

and clarifying changes would also be 

made Article 3.1.6.1 to add references 

for Index Swaptions. Existing Article 

3.1.6.1(iv) would be renumbered as 

3.1.6.1(v). 

Article 3.1.6.4 currently provides that 

LCH SA will be entitled to assume that 

certain events (such as delivery of a 

Credit Event Notice or Notice of 

Physical Settlement) have not occurred 

prior to novation because these events 

would terminate a constituent of the 

index underlying the CDS contract 

submitted for clearing; similarly, it 

would be amended to clarify that such 

events include Notices to Exercise 

Movement Option and Exercise Notices 

with respect to Index Swaptions 

because delivery of such notices would 

signify expiry of the option contract 

submitted for clearing. 

Article 3.2.2.3 would clarify that LCH 

SA would calculate a Clearing Member’s 

Open Positions by netting Cleared 

Transactions of the same type, including 

the same Swaption Type, as applicable. 

Article 3.3.1.3 would be amended to 

clarify that following a Restructuring 

Credit Event, LCH SA may compress 

Index Swaption Cleared Transactions to 

result in one or more Cleared 

Transaction(s) per Swaption Type and 

to provide that during an EMP Creation 

Period, LCH SA may compress Index 

Swaption Cleared Transactions to result 

in one or more Exercise Cleared 

Transactions. Article 3.3.1.4 similarly 

would be amended to clarify that 

compression of Cleared Transactions 

would be done in the same CDS Type 

or Swaption Type, as applicable. Article 

3.3.1.7, which also relates to 

compression, would be amended to 

specify that Premiums in respect of 

Index Swaptions will be netted and the 

Premiums for the Cleared Transactions 

resulting from the compression shall be 

determined by reference to the Cleared 

Transactions that were compressed. 

Finally, LCH SA also would make 

conforming changes and corrections to 

Articles 3.1.6.8 and 3.1.10.7. 

d. End of Day Pricing Determination 

Section 4.2.7, which sets forth the 

procedures for calculating and using 

end of day pricing, would be amended 

to incorporate procedures for 

calculating end of day pricing for Index 

Swaptions. Article 4.2.7.1 would 

preserve the existing ‘‘Markit LCH 

Settlement Price’’ as the price/spread 

used to calculate the settlement prices 

for Index Cleared Transactions and 

Single Name Cleared Transactions on 

either an end of day or intra-day basis 

and add that LCH SA will use the ‘‘LCH 

Settlement Price’’ for purposes of 

calculating any risk calculation, valuing 

a Clearing Member’s Open Positions and 

calculating a Clearing Member’s Margin 

Requirements in respect of Index 

Swaptions. Article 4.2.7.2 would be 

amended to authorize each Clearing 

Member to use the ‘‘LCH Settlement 

Price’’ in respect of Index Swaptions in 

the same manner that Clearing Members 

are authorized to use the Markit LCH 

Settlement Price. Articles 4.2.7.3, which 

includes a disclaimer of warranties and 

liabilities as to End of Day Contributed 

Prices, and Article 4.2.7.5, which 

provides that End of Day Contributed 

Prices are accepted ‘‘as is,’’ would each 

be amended to make clear that the 


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disclaimers and limitations therein also 

apply to the LCH Settlement Price in 

respect of Index Swaptions. Article 

4.2.7.6 would be amended to keep the 

Index Publisher as an intended third 

party beneficiary of Article 4.2.7.1 and 

Article 4.2.7.5 but only in respect of the 

Markit LCH Settlement Prices, not the 

newly-added LCH Settlement Prices that 

are calculated by LCH SA. 

Articles 4.2.7.7 and 4.2.7.8 would also 

be amended to incorporate references 

for Index Swaptions and Article 4.2.7.5 

would include a minor clarifying 

change for readability. 

e. Client Clearing Service 

Article 5.1.1.3, which constitutes the 

Mandatory Client Clearing Provisions, 

would be amended to incorporate 

references to Index Swaption Seller and 

Index Swaption Buyer along with 

references to CDS Buyer and CDS Seller. 

Other clarifications and corrections 

would also be made in Article 5.1.1.3, 

Article 5.1.2.2, and Article 6.1.1.3. 

Article 6.4.1.1 would include one 

conforming change to clarify that Index 

Swaptions may be transferred in the 

same manner as CDS if, at any time, a 

liquidation date exists. 

f. Default Management Process 

Appendix 1 of the Rule Book sets 

forth the process in accordance with 

which LCH SA and its Default 

Management Group will manage the 

default of a Clearing Member (the ‘‘CDS 

Default Management Process’’). The 

CDS Default Management Process 

would be amended in various places to 

incorporate terms for Index Swaptions. 

Clause 5.4.1 of the CDS Default 

Management Process, which provides 

for the scope of the requirement to 

participate in the competitive auction 

process for a Defaulting Clearing 

Member’s transactions, would be 

amended to provide that an Auction 

Participant that is not registered for the 

Index Swaption Clearing Service is not 

required to participate in Competitive 

Bidding for an Auction Package 

containing any Index Swaption Cleared 

Transactions. Clause 6.1.2 of the CDS 

Default Management Process would be 

amended to establish the procedures for 

registering winning bids that are Index 

Swaptions so that if a Clearing Member 

is not currently registered for the Index 

Swaption Clearing Service, the Clearing 

Member will become automatically 

registered for the Index Swaption 

Clearing Service and its Product Family 

forms will be updated in accordance 

with Article 3.1.6.8 of the Rule Book. 

Clause 11.2.2 of the CDS Default 

Management Process would be amended 

to provide that of the five different 

members appointed as the CDS Default 

Management Group, at least two 

Clearing Members shall be registered for 

the Index Swaption Clearing Service. 

Additional conforming and clarifying 

changes would also be made in the CDS 

Default Management Process Three 

defined terms, ‘‘Invoice Back,’’ ‘‘Product 

Cash Payments’’ and ‘‘Transaction 

Categories,’’ would be amended to 

incorporate terms for Index Swaptions. 

Clause 5.6.3 of the CDS Default 

Management Process would be amended 

to clarify the calculation for adjusting 

the Initial Allocation Price and the 

allocation of the Auction Package in the 

event where the aggregate of each Non 

Bidder’s Auction Non Bidder Bid Size is 

equal to or greater than 100. Clause 8.3 

of the CDS Default Management Process 

would also be amended to incorporate 

terms for Index Swaptions. 

ii. Clearing Supplement 

A new Part C would be added to the 

Clearing Supplement, to provide the 

terms of Index Swaption Cleared 

Transactions. The Index Swaption 

contracts would be based on the form of 

confirmation incorporating the iTraxx 

Swaption Standard Terms Supplement 

and reference the 2014 ISDA Credit 

Derivatives Definitions and the 2006 

Definitions, with certain modifications. 

The Clearing Supplement is the 

document which sets forth the 

economic terms of the transactions 

cleared by LCH SA and the new Part C, 

in particular, would detail the economic 

terms that are particular to Index 

Swaption Cleared Transactions. 

a. General Provisions 

Section 1 of Part C sets forth general 

provisions of Index Swaption Cleared 

Transactions, including incorporation of 

defined terms by reference, definitions 

of capitalized terms, resolution of 

inconsistencies or conflicts between the 

documents governing Index Swaptions, 

timing references, third party rights, 

recording, and application of the CDS 

Clearing Supplement to FCM Clearing 

Members with respect to client 

transactions. 

b. Terms of Cleared Transactions 

Section 2 of Part C would provide for 

the creation of Index Swaption Cleared 

Transactions, Swaption Restructuring 

Cleared Transactions, and Exercise 

Cleared Transactions. As described 

above, an Index Swaption Cleared 

Transaction is a Cleared Transaction, 

the terms of which are as evidenced by 

an Index Swaption Cleared Transaction 

Confirmation, which gives Swaption 

Buyer the right to enter into a specified 

Underlying Index Transaction with 

Swaption Seller. A Swaption 

Restructuring Cleared Transaction, in 

turn, is an Index Swaption Cleared 

Transaction forming part of an Swaption 

Restructuring Matched Pair, meaning a 

set of transactions created by LCH SA as 

a result of an ISDA Determinations 

Committee announcement of the 

occurrence of an M(M)R Restructuring 

Credit Event (as defined in the ISDA 

Credit Definitions) for a Reference 

Entity referenced by such Underlying 

Index Transaction. An Exercise Cleared 

Transaction is an Index Swaption 

Cleared Transaction (including each 

Swaption Restructuring Cleared 

Transaction, as applicable) forming part 

of an Exercise Matched Pair, meaning a 

set of transactions created by LCH SA as 

a result of LCH SA’s matching process, 

as described below. Upon the novation 

of an Original Transaction which is an 

Index Swaption or the creation of a 

Swaption Restructuring Cleared 

Transaction or an Exercise Cleared 

Transaction, Section 2 of Part C 

provides that each resulting Index 

Swaption Cleared Transaction and each 

such Swaption Restructuring Cleared 

Transaction and Exercise Cleared 

Transaction is then entered into by LCH 

SA and the relevant Clearing Member 

on the terms of the related Index 

Swaption Cleared Transaction 

Confirmation. 

As noted above, an Index Swaption 

Cleared Transaction would be 

evidenced by an Index Swaption 

Cleared Transaction Confirmation, 

which, for an Underlying Index 

Transaction that references a Series of 

the Markit iTraxx® Europe Index, would 

be in the form of confirmation which 

incorporates the iTraxx® Swaption 

Standard Terms Supplement. Section 2 

of Part C would make certain 

modifications to such form of 

confirmation to specify, for example, 

that the Index Swaption Cleared 

Transaction is between LCH SA and the 

Clearing Member, that the confirmation 

supplements and forms part of, and is 

subject to, the CDS Clearing 

Documentation, that LCH SA is the 

calculation agent for purposes of the 

transaction, and that LCH SA will be the 

central counterparty for each Index 

Swaption Cleared Transaction. The 

Index Swaption Cleared Transaction 

Confirmation would also provide 

additional terms regarding termination 

of the Swaption Transaction on the 

Expiration Date. 

Section 2 of Part C also specifies 

procedures for compression exercises 

for Index Swaption Cleared 

Transactions. In addition, certain 

amendments to the 2014 ISDA Credit 

Derivatives Definitions would be made 


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in order to enable LCH SA to designate 

a designee for delivering or receiving 

Credit Event Notices or Notices to 

Exercise Movement Option relating to 

an M(M)R Restructuring Credit Event. 

c. Payments 

Section 3 of Part C would set forth the 

payment obligations of each of LCH SA 

and each Clearing Member as well as 

the requirement to pay Premiums in 

respect of Index Swaption Cleared 

Transactions. Section 3.1 of Part C 

would provide that each of LCH SA and 

each Clearing Member will make each 

payment specified under the terms of 

each Cleared Transaction to be made by 

it, subject to the other provisions of the 

CDS Clearing Documentation and that 

payments under any Cleared 

Transaction will be made on the due 

date for value on that date in the place 

of the account specified for the relevant 

party in the CDS Admission Agreement 

(or such other account as may be 

designated by it from time to time). 

Section 3.2 of Part C would provide that 

if the Premium is due and payable 

under the terms of an Original 

Transaction on or before the Clearing 

Day on which the related Index 

Swaption Cleared Transactions are 

created by novation, such amount 

would be payable under and in 

accordance with the terms of such 

Original Transaction. If the Premium 

Payment Date of an Original Transaction 

would be a date falling after the Clearing 

Day on which the Index Swaption 

Cleared Transactions related to such 

Original Transaction are created by 

novation, then the corresponding 

Premium Payment Date for the related 

Index Swaption Cleared Transactions 

shall occur on the Transaction Business 

Day which is also a Clearing Day 

immediately following the Clearing Day 

on which such related Index Swaption 

Cleared Transactions are created and the 

Index Swaption Cleared Transaction 

Confirmation shall be deemed to have 

been amended accordingly. 

d. Credit Event and Succession Events 

Section 4 of Part C would outline the 

requirements and procedures in the 

event of a Credit Event, Succession 

Event or M(M)R Restructuring Credit 

Event. With respect to Credit Events and 

Succession Events, Section 4.1 of Part C 

would provide that LCH SA (in its 

capacity as Calculation Agent with 

respect to such Cleared Transaction) 

will not make any determinations 

pursuant to the 2014 ISDA Credit 

Definitions on substituting reference 

obligations or which may be subject to 

successor resolutions of the ISDA 

Determinations Committee Rules and 

that neither LCH SA nor any Clearing 

Member shall be entitled to deliver a 

Successor Notice or a Credit Event 

Notice (other than Credit Event Notices 

in relation to an M(M)R Restructuring 

Credit Event, as described below). With 

respect to an M(M)R Restructuring 

Credit Event, Section 4.2 of Part C 

would provide that upon an ISDA 

Determinations Committee Credit Event 

Announcement of an M(M)R 

Restructuring Credit Event, LCH SA will 

publish and make available to Clearing 

Members a timeline in respect of the 

relevant Credit Event and related 

Cleared Transactions for which the 

Underlying Index Transaction 

references the affected Reference Entity, 

to notify, among other things, the 

relevant Novation Cut-off Date, 

Compression Cut-off Date and First 

Novation Date. Any such timeline may 

be subject to subsequent amendment by 

LCH SA, however, by means of a 

Clearing Notice to Clearing Members, to 

reflect subsequent ISDA Determinations 

Committee resolutions, timing 

provisions of any relevant Transaction 

Auction Settlement Terms, or in each 

case any subsequent amendments 

thereto. To the extent that an ISDA 

Determinations Committee 

Announcement is reversed, Section 4.3 

of Part C would require LCH SA to 

calculate and LCH SA would be entitled 

to call for margin and/or be obliged to 

return margin with respect to each 

Clearing Member. 

e. Restructuring 

Section 5 of Part C, entitled 

Restructuring, would set forth the 

requirements and procedures for the 

creation of Swaption Restructuring 

Matched Pairs, the triggering and partial 

triggering of Swaption Restructuring 

Cleared Transactions, and the 

notification requirements in respect of 

Swaption Restructuring Matched Pairs. 

Specifically, Section 5.1 of Part C would 

provide that following the occurrence of 

an ISDA Determinations Committee 

Announcement in respect of an M(M)R 

Restructuring Credit Event in respect of 

a Reference Entity referenced by the 

Underlying Index Transaction to which 

a set of Index Swaption Cleared 

Transactions of the same Swaption Type 

relates, LCH SA will create (on one or 

more occasions) Swaption Restructuring 

Matched Pairs and each such Swaption 

Restructuring Matched Pair shall be 

composed of two Swaption 

Restructuring Cleared Transactions. 

Under Section 5.2 of Part C, where 

two or more Index Swaption Cleared 

Transactions have been combined into a 

single transaction as part of the 

matching process and/or where any 

Index Swaption Cleared Transaction has 

been split into two or more separate 

transactions as part of the matching 

process, the relevant original Index 

Swaption Cleared Transactions entered 

into by each Clearing Member with LCH 

SA will be deemed terminated and new 

Swaption Restructuring Cleared 

Transactions of the same Swaption Type 

will be deemed to be entered into 

between each such Clearing Member 

and LCH SA, with each such Swaption 

Restructuring Cleared Transaction 

having a Swaption Notional Amount 

(and with the Underlying Index 

Transaction in respect of each such 

Swaption Restructuring Cleared 

Transaction having an Original Notional 

Amount) corresponding to the Swaption 

Restructuring Matched Pair Amount of 

the Swaption Restructuring Matched 

Pair in which the relevant Clearing 

Member is comprised as a Matched 

Buyer or a Matched Seller, as 

applicable. 

Section 5.3 of Part C would provide 

when a Clearing Member may deliver 

Credit Event Notices (as CDS Buyer or 

CDS Seller) in relation to an M(M)R 

Restructuring Credit Event. Section 5.4 

of Part C would address a partial 

triggering of a Swaption Restructuring 

Cleared Transaction. Section 5.5 of Part 

C would specify the requirements for 

delivering a Notice to Exercise 

Movement Option. Section 5.6 would 

set forth the effect of Credit Event 

Notices and Notices of Exercise 

Movement Options, providing that a 

Matched Buyer and Matched Seller 

shall have no payment or delivery 

obligations in respect of the M(M)R 

Restructuring Credit Event as a result of 

the delivery of a Credit Event Notice or 

Notice to Exercise Movement Option. 

Such payment and delivery obligations 

shall instead arise under the 

Restructuring Cleared Transactions 

created following exercise (if 

applicable). Section 5.7 of Part C would 

outline the procedures upon the reversal 

of an ISDA Determinations Committee 

M(M)R Restructuring Credit Event 

announcement. Section 5.8 of Part C 

would set forth the reports that LCH SA 

would deliver to relevant Clearing 

Members as a result of an M(M)R 

Restructuring Credit Event. Finally, 

Section 5.9 of Part C would set forth the 

procedures applicable upon the expiry 

of the CEN Triggering Period (i.e., the 

period during which the parties to the 

Swaption Restructuring Cleared 

Transaction of a Swaption Restructuring 

Matched Pair may deliver a Credit Event 

Notice in relation to the relevant M(M)R 

Restructuring Credit Event). 


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f. Exercise Matched Pairs 

Section 6 of Part C would address the 

exercise of Matched Pairs, including the 

creation and notification of Exercise 

Matched Pairs, the creation of Exercise 

Cleared Transactions, the delivery of 

Exercise and Abandonment Notices, and 

Cleared Transaction Exercise Reports. 

On each Transaction Business Day 

during the EMP Creation Period (i.e., the 

period from (and including) the final 

Transaction Business Day of the 

calendar week immediately preceding 

the week in which the Expiration Date 

falls to (but excluding) the Transaction 

Business Day immediately preceding 

the Expiration Date), LCH SA will create 

Exercise Matched Pairs for a set of Index 

Swaption Cleared Transactions of the 

same Swaption Type, and each such 

Exercise Matched Pair shall be 

composed of two Exercise Cleared 

Transactions. Upon the creation of an 

Exercise Matched Pair, LCH SA will 

then notify the relevant Matched Buyer 

and Matched Seller comprised within 

each Exercise Matched Pair of: (i) The 

identity of the other Clearing Member of 

such Exercise Matched Pair; and (ii) the 

associated Exercise Matched Pair 

Amount. Section 6.1 of Part C would 

also provide that if Swaption 

Restructuring Matched Pairs have 

previously been created, then such 

Swaption Restructuring Matched Pairs 

and the Swaption Restructuring Cleared 

Transactions from which they are 

formed shall also automatically 

constitute Exercise Matched Pairs and 

Exercise Cleared Transactions (in 

addition to being Swaption 

Restructuring Matched Pairs and 

Swaption Restructuring Cleared 

Transactions) for the purposes of the 

Clearing Supplement. 

Section 6.2 of Part C provides that 

upon the notification to the relevant 

Clearing Members of Exercise Matched 

Pairs, where two or more Index 

Swaption Cleared Transactions have 

been combined into a single transaction 

as part of the matching process and/or 

where any Index Swaption Cleared 

Transaction has been split into two or 

more separate transactions as part of the 

matching process, the relevant original 

Index Swaption Cleared Transactions 

entered into by each Clearing Member 

with LCH SA will be deemed 

terminated and new Exercise Cleared 

Transactions of the same Swaption Type 

will be deemed to be entered into 

between each such Clearing Member 

and LCH SA. 

Section 6.3 of Part C would provide 

that Exercise Notices will be delivered 

by Swaption Buyers to Swaption Sellers 

and that any Exercise Notice delivered 

in respect of an Exercise Matched Pair 

for an amount which is greater than the 

related Exercise Matched Pair Notional 

Amount shall be ineffective as to such 

excess. 

Section 6.4 of Part C would provide 

that if on the Expiration Date Swaption 

Buyer delivers a valid Abandonment 

Notice to Swaption Seller, then upon 

delivery of such notice each Exercise 

Cleared Transaction specified in such 

Abandonment Notice shall be 

terminated in whole and no further 

amounts shall become due and payable 

by Swaption Buyer to Swaption Seller 

or vice versa in respect of such Exercise 

Transaction. 

Finally, Section 6.5 of Part C would 

provide that LCH SA will communicate 

to the relevant Clearing Members, on the 

basis of information received from 

Clearing Members the aggregate 

Swaption Notional Amounts of Exercise 

Cleared Transactions to which they are 

a party as Swaption Buyer in respect of 

which Exercise Notices and 

Abandonment Notices have been 

delivered and the aggregate Swaption 

Notional Amounts of Exercise Cleared 

Transactions to which they are a party 

as Swaption Seller in respect of which 

Exercise Notices and Abandonment 

Notices have been delivered, in each 

case on an ongoing basis on the 

Expiration Date. 

g. Settlement 

Section 7 of Part C would address 

settlement, providing that following 

Exercise, an Index Cleared Transaction 

shall be deemed to have been entered 

into between each Clearing Member and 

LCH SA on the terms of the Underlying 

Index Transaction to which the relevant 

Exercise Cleared Transactions relates 

and evidenced by an Index Cleared 

Transaction Confirmation. Following 

the creation of such Index Cleared 

Transaction and any Initial Single Name 

Cleared Transaction(s) and 

Restructuring Cleared Transaction(s), 

the Exercise Cleared Transaction from 

which it was created shall be 

terminated. Section 7 would also 

provide procedures for the creation of 

Single Name Cleared Transactions 

following a Credit Event as well as 

creation of Restructuring Cleared 

Transactions following an M(M)R 

Restructuring Credit Event. 

h. Notices 

Section 8 of Part C would provide for 

general rules relating to notices, 

including the methods of delivery of 

various notices and the timing of 

delivery for such notices. 

i. Matched Pair Designations 

Section 9 of Part C would outline the 

procedures for the creation of Matched 

Pairs, the registration of new Swaption 

Restructuring Cleared Transactions and 

Exercise Cleared Transactions, resetting 

of Swaption Trade Dates, the exercise of 

rights by Matched Buyers and Matched 

Sellers, and Matched Pairs with the 

same clearing member. Section 9.1 of 

Part C would provide that LCH SA will 

create Matched Pairs using a matching 

procedure that matches Swaption 

Sellers with Swaption Buyers pursuant 

to an algorithm. Section 9.2 of Part C 

would address the registration of 

Swaption Restructuring Cleared 

Transactions and Exercise Cleared 

Transactions and removal of original 

Index Swaption Cleared Transactions in 

accordance with DTCC Rules. Section 

9.3 of Part C would provide the 

circumstances under which LCH SA 

may reset a Swaption Trade Date for 

Swaption Restructuring Cleared 

Transaction or Exercise Cleared 

Transaction. Section 9.4 of Part C would 

set forth the notice mechanics with 

respect to applicable notices, including 

with respect to Exercise Notices and 

Abandonment Notices. Section 9.5 of 

Part C would provide that, in relation to 

each Matched Pair, (x) the exercise of 

any rights by Matched Buyer against 

LCH SA under a Matched Buyer 

Contract shall be deemed to constitute 

the exercise of equal and simultaneous 

rights by LCH SA against Matched 

Seller under the Matched Seller 

Contract of the relevant Matched Pair, 

and (y) the exercise of any rights by 

Matched Seller against LCH SA under a 

Matched Seller Contract shall be 

deemed to constitute the exercise of 

equal and simultaneous rights by LCH 

SA against Matched Buyer under the 

Matched Buyer Contract of the relevant 

Matched Pair. To the extent that 

Matched Buyer and Matched Seller of a 

Matched Pair is the same Clearing 

Member, Section 9.6 would provide that 

such Clearing Member shall be deemed 

to have sent a notice from itself in its 

role as Matched Buyer to itself in its role 

as Matched Seller (and vice versa) upon 

such Clearing Member sending a 

Clearing Member Notice to LCH SA. 

Section 9.7 of Part C would then set 

forth the notice mechanics with respect 

to Matched Pair Buyer and Matched Pair 

Sellers. 

j. Miscellaneous 

Sections 10 through 15 of Part C 

would contain miscellaneous 

provisions, including ones that relate to 

the mandatory provisions to be 

incorporated into CCM Client 


sradovich on DSK3GMQ082PROD with NOTICES
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Transactions, amendments, form of 

notices, limitation and exclusion of 

liability, dispute resolution, and 

governing law. The appendices to Part 

C would also include various forms, 

including the form of Exercise Notice 

(Appendix I), Abandonment Notice 

(Appendix II), Credit Event Notice 

(Appendix III), Notice to Exercise 

Movement Option (Appendix IV), 

Notice of Dispute Relating to Any 

Swaption Restructuring Exercise 

Matched Pair (Appendix V), and CCM 

Client Transaction Requirements 

(Appendix VI). 

iii. CDS Clearing Procedures 

Various changes to the Procedures 

would be made for Index Swaptions. 

a. Membership 

Section 1.1 of the Procedures sets 

forth the indicative timeline for LCH 

SA’s processing of membership 

applications. Section 1.1 of the 

Procedures would be amended to clarify 

that an Applicant would be required to 

identify operational personnel with 

knowledge of Index Swaptions and that 

whether a Clearing Member’s 

registration for the Index Swaption 

Clearing Service is approved will be 

specified in the LCH SA approval letter. 

Section 1.2 would be amended to state 

that if a Clearing Member wishes to 

register, or to be no longer registered, for 

the Index Swaption Clearing Service 

that Clearing Member must inform LCH 

SA and that LCH SA will notify the 

Clearing Member of its decision to 

register or terminate registration of the 

Clearing Member in respect of the Index 

Swaption Clearing Service. Section 1.2 

of the Procedures would further provide 

that if a Clearing Member wishes to no 

longer be registered for the Index 

Swaption Clearing Service, LCH SA will 

not approve such a request as long as 

there is any Index Swaption Cleared 

Transaction registered in that Clearing 

Member’s Account Structure. 

b. Margin and Price Alignment Interest 

Section 2.7 of the Procedures, which 

describes the Initial Margin collected by 

LCH SA, would be modified to include 

a reference to Index Swaptions and to 

clarify that Initial Margin covers 

potential costs caused by a Defaulting 

Clearing Member and/or a ‘‘double 

Event of Default,’’ in respect of which 

the Clearing Member is a protection 

seller in respect of the Underlying Index 

Transaction of an Index Swaption 

Cleared Transaction. Sections 2.7(a)–(b) 

also include amendments for 

clarification purposes; Section 2.7(a) 

would note that Spread Margin would 

be calculated using spread and volatility 

variations; Section 2.7(b) would delete 

language for readability. Section 2.7(c) 

of the Procedures would be amended to 

refer to Index Swaption Cleared 

Transactions and to make clear the 

Short Charge Margin would be imposed 

where a Clearing Member is acting as a 

protection seller in respect of the 

Underlying Index Transaction of an 

Index Swaption Cleared Transaction. 

Section 2.8 of the Procedures would be 

amended to specify that SelfReferencing Protection Margin would be 

imposed where a Clearing Member is 

acting as a protection seller in respect of 

the Underlying Index Transaction of an 

Index Swaption Cleared Transaction, for 

which such Clearing Member is, or 

becomes, the Reference Entity. In 

Section 2.10 of the Procedures, changes 

would be made to specify that each 

Clearing Member acting as a protection 

buyer in respect of an Underlying Index 

Transaction of an Index Swaption 

Cleared Transaction where the exercise 

of that Index Swaption Cleared 

Transaction falls in the margin 

calculation time horizon would be 

required to pay Accrued Fixed Amount 

Liquidation Risk Margin, to cover the 

risk that it is subject to an Event of 

Default and accrued Fixed Amounts are 

due during the period that the relevant 

House Cleared Transactions or NonPorted Cleared Transactions, as 

applicable, are liquidated pursuant to 

the CDS Default Management Process. 

Section 2.11 of the Procedures, which 

relates to Credit Event Margin, would 

also be amended to specify that where 

a Credit Event occurs with respect to the 

Reference Entity which is the subject of 

the Cleared Transaction, each Clearing 

Member is required to pay Credit Event 

Margin to cover the risk of a potential 

adverse change in the estimated 

recovery rate, in the event of nonpayment of Variation Margin by the 

Index Swaption Seller or Index 

Swaption Buyer in respect of an Index 

Swaption Cleared Transaction. Section 

2.13 of the Procedures would also be 

amended to clarify that Variation 

Margin covers the variation of the 

market value of an Index Swaption. 

c. Collateral and Cash Payment 

Section 3.18 of the Procedures would 

be amended to state that a Clearing 

Member is required to pay Premiums to 

satisfy its Cash Payment obligation in 

respect of Index Swaptions. 

d. Eligibility Requirements 

Section 4.1 of the Procedures, which 

provides that LCH SA provides CDS 

Clearing Services only in relation to 

Original Transactions which comply 

with the requirements of Section 4.1(c) 

of the Procedures, would be modified to 

provide that in respect of an Original 

Transaction that is an Index Swaption 

Intraday Transaction, the Clearing 

Member must be registered for the Index 

Swaption Clearing Service. Section 4.1 

(c)(iii)(C) would also be added to 

identify the eligibility requirements for 

Index Swaption Intraday Transactions. 

A new Section 4.4 of the Procedures 

would be added to detail the procedures 

and factors for LCH SA to identify those 

contracts which will be considered 

Eligible Index Swaptions. Section 4.4 of 

the Procedures would require that LCH 

SA, in consultation with the CDSClear 

Product Committee, consider (i) each 

Expiration Date that is eligible for 

clearing; (ii) each Index Version of the 

Underlying Index Transaction which is 

eligible for clearing, as well as each term 

which is eligible for clearing and the 

currency of the Original Notional 

Amount which is eligible for clearing. 

Section 4.4(c) of the Procedures would 

also require that eligible Index 

Swaptions be published on LCH SA’s 

Web site and Section 4.4(d) of the 

Procedures would permit LCH SA, in 

consultation with the CDSClear Product 

Committee, to amend the Eligible Index 

Swaptions List. Section 4.4(e)(ii) of the 

Procedures would identify the 

circumstances in which a Clearing 

Member may submit for clearing an 

Index Swaption that does not satisfy the 

relevant criteria in Section 4.1(c)(vi) of 

the Procedures if such transaction is a 

risk reducing transaction (as determined 

by LCH SA) in respect of a relevant 

Margin Account and it is not unlawful 

or illegal for LCH SA to accept such 

transaction for clearing. 

e. CDS Clearing Operations 

Section 5 of the Procedures, which 

addresses CDS clearing operations, 

would include various amendments to 

facilitate clearing of Index Swaptions. 

Section 5.5 of the Procedures would be 

modified to include a description of the 

trade compression process for Index 

Swaption Cleared Transactions. Section 

5.8 of the Procedures sets forth the 

process and procedures to ensure that 

all Cleared Transactions are stored and 

replicated on LCH SA’s systems. 

Additional events required to be 

recorded and stored would be added to 

the list of items in Section 5.8 of the 

Procedures, including the creation of 

Swaption Restructuring Cleared 

Transactions and Exercise Cleared 

Transactions as well as the exercise of 

Exercise Cleared Transactions. Section 

5.16 of the Procedures would be 

amended to require that LCH SA 

publish a Cleared Transaction Exercise 

Report. Section 5.18.2 (b) of the 


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4 15 U.S.C. 78q–1. 

5 17 CFR 240.17Ad–22. 

6 15 U.S.C. 78q–1(b)(3)(F). 

7 15 U.S.C. 78q–1(b)(3)(F). 

8 17 CFR 240.17Ad–22(e)(1), (4), (8), (12), (17), 

(18), and (22). 

9 17 CFR 240.17Ad–22(e)(1). 

10 17 CFR 240.17Ad–22(e)(13). 

11 17 CFR 240.17Ad–22(e)(18). 

12 15 U.S.C. 78q–1(b)(3)(F). 

Procedures would be amended to 

describe the process of the calculation 

of End of Day Contributed Prices in 

respect of Index Swaptions, which 

would include (i) the receipt and 

communication of market data from the 

Index Publisher, (ii) the application of a 

bid/ask constraint by LCH SA, with 

such values as defined by LCH SA from 

time to time, (iii) determination of a 

clearing price by LCH SA, and (iv) 

determination of any cross trades by 

LCH SA. Section 5.18.4 of the 

Procedures, relating to the use of data 

from an Index Publisher, would be 

modified to specify that if data is not 

received from the Index Publisher, LCH 

SA will use, with respect to Index 

Swaption Cleared Transactions, a 

computation of end of day contributed 

spreads and composite spreads for the 

purpose of calculating the Variation 

Margin Requirement for each Margin 

Account of a Clearing Member on the 

next following Business Day. Section 

5.18.5 of the Procedures would then be 

amended to include a procedure for 

effecting cross trades where prices 

submitted by market participants in 

accordance with Section 5.18 do not 

reflect the quoted daily price for a 

particular Index Swaption. Finally, 

various other conforming and clarifying 

changes to refer to Index Swaptions 

would be made in Sections 5.3, 5.5, 5.12 

and 5.16. Other amendments not related 

to Index Swaptions were made in 

Sections 5.11, 5.15 and 5.18.2 (a) for 

clarification purposes. 

iv. Dispute Resolution Protocol 

Section 3.10 of the Dispute Resolution 

Protocol, which establishes the 

procedures applicable to arbitration 

proceedings involving LCH SA, would 

be amended to specify that these 

procedures also apply if the parties to 

the arbitration include an Index 

Swaption Seller or Index Swaption 

Buyer and if the dispute arises out of or 

in connection with the Cleared 

Transactions which are the subject of a 

Swaption Restructuring Matched Pair or 

Exercise Matched Pair. 

2. Statutory Basis 

LCH SA believes that the proposed 

rule change and the clearing of Index 

Swaptions is consistent with the 

requirements of Section 17A of the 

Securities Exchange Act of 1934 4 (the 

‘‘Act’’) and the regulations thereunder, 

including the standards under Rule 

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

Act 6 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. 

As noted above, the proposed rule 

change is designed to provide for the 

clearing of Index Swaptions. From the 

operational point of view, Index 

Swaptions would not require changes to 

the existing operational procedures and, 

upon being exercised, the resulting 

exercised cleared transactions will be 

cleared in the same manner as other 

index contracts, consistent with LCH 

SA’s operational arrangements. In 

addition, the proposed rule change, 

including amendments to Titles IV, V, 

and VI of the Rulebook, Part C of the 

Clearing Supplement, CDS Clearing 

Procedures, and Dispute Resolution 

Protocol will also clearly set forth the 

terms and conditions of Index Swaption 

Cleared Transactions, the payments to 

be made thereunder, the rules and 

procedures upon the occurrence of a 

Credit Event or Restructuring Event, the 

process for settlement, the applicable 

documentation for Index Swaption 

Cleared Transactions, as well as the 

dispute resolution protocol. Therefore, 

LCH SA believes that the clearing of 

Index Swaptions and the related 

changes described herein are consistent 

with the prompt and accurate clearance 

and settlement of securities transactions 

and derivative agreements, contracts 

and transactions, in accordance with 

17(A)(b)(3)(F) of the Act.7

In addition, the proposed 

amendments also satisfy the relevant 

requirements of Rule 17Ad–22(e)(1), 

(13), and (18).8 Rule 17Ad–22(e)(1) 9

requires that a clearing agency maintain 

a well-founded, clear, transparent, and 

enforceable legal basis for each aspect of 

its activities in all relevant jurisdictions. 

The proposed rule change would 

modify LCH SA’s existing rules and 

procedures to clearly define the 

requirements for Index Swaptions and 

establish a legal framework for LCH SA 

to clear Index Swaptions. The proposed 

rule change would also make certain 

corrections and clarifying and 

conforming changes in the Rule Book. 

LCH SA therefore believes that the 

proposed rule change is consistent with 

the requirements of Rule 17Ad–22(e)(1). 

Further, Rule 17Ad–22(e)(13) requires 

a covered clearing agency to establish, 

maintain, and enforce policies and 

procedures reasonably designed to 

ensure the covered clearing agency has 

the authority and operational capacity 

to take timely action to contain losses 

and liquidity demands and continue to 

meet its obligations. LCH SA will apply 

its existing default management policies 

and procedures for Index Swaptions, 

including the procedures for 

participation in a competitive auction 

process for a Defaulting Clearing 

Member’s transactions and the 

appointment of at least two Clearing 

Members registered for the Index 

Swaption Clearing Service to be part of 

the five-member CDS Default 

Management Group, to allow LCH SA to 

take timely action to contain losses and 

liquidity demands, in accordance with 

17Ad–22(e)(13).10

Finally, Rule 17Ad–22(e)(18) requires 

a covered clearing agency to have 

policies and procedures reasonably 

designed to establish objective, riskbased, and publicly disclosed criteria 

for participation, which permit fair and 

open access by direct, and where 

relevant, indirect participants and other 

financial market utilities, require 

participants to have sufficient financial 

resources and robust operational 

capacity to meet obligations arising from 

participation in clearing agency. As 

noted above, the proposed rule change 

would extend existing participation 

requirements to persons proposing to 

enter into Index Swaptions and make 

clear that such persons must have 

operational competence in respect of 

Index Swaptions. Therefore, LCH SA 

believes that the proposed rule change 

is consistent with the requirements of 

Rule 17Ad–22(e)(18).11 Further, the 

membership requirements applicable to 

persons proposing to enter into Index 

Swaptions are designed to identify 

persons with sufficient operational 

capacity and expertise in relation to 

Index Swaptions; such requirements or 

criteria apply to every and all persons 

applying to enter into Index Swaptions 

clearing service equally and, as such, 

are not designed to unfairly 

discriminate in the admission of 

participants or among participants of 

LCH SA, in accordance with 

17(A)(b)(3)(F) of the Act.12

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 


sradovich on DSK3GMQ082PROD with NOTICES
41446 Federal Register / Vol. 82, No. 168 / Thursday, August 31, 2017 / Notices 

13 15 U.S.C. 78q–1(b)(3)(I). 14 17 CFR 200.30–3(a)(12). 

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

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

4 15 U.S.C. 78s(b)(1). 

5 17 CRF 240.19b–4. 

6See, Rule 600(b)(42) under Regulation NMS. 

purposes of the Act.13 LCH SA does not 

believe that its clearing of Index 

Swaptions will adversely affect 

competition in the trading market for 

those contracts or CDS generally. By 

allowing LCH SA to clear Index 

Swaptions, market participants will 

have additional choices on where to 

clear and which products to use for risk 

management purposes, which, in turn, 

will promote competition and further 

the development of CDS for risk 

management. In addition, LCH SA will 

apply its existing fair and open access 

criteria to the clearing of Index 

Swaptions and will apply the same 

criteria to every person who proposes to 

enter into the clearing of Index 

Swaptions. Such criteria are designed to 

identify persons with sufficient 

operational capacity and expertise in 

relation to Index Swaptions as part of 

the membership requirements that are 

necessary and appropriate for LCH SA 

to manage the risk arising from allowing 

persons to participate in Index 

Swaptions. Accordingly LCH SA does 

not believe that the proposed rule 

change will impose any burden on 

competition that is 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–2017–006 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–2017–006. 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–2017–006 and 

should be submitted on or before 

September 21, 2017. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.14

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–18450 Filed 8–30–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81484; File No. SR–IEX– 

2017–27] 

Self-Regulatory Organizations: 

Investors Exchange LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change Related to 

Transaction Fees Pursuant to Rule 

15.110 

August 25, 2017. 

Pursuant to Section 19(b)(1) 1 of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’) 2 and Rule 19b–4 thereunder,3

notice is hereby given that on August 

11, 2017, the Investors Exchange LLC 

(‘‘IEX’’ or the ‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(the ‘‘Commission’’) the proposed rule 

change as described in Items I, II and III 

below, which Items have been prepared 

by the self-regulatory organization. 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 the Substance 

of the Proposed Rule Change 

Pursuant to the provisions of Section 

19(b)(1) under the Securities Exchange 

Act of 1934 (‘‘Act’’),4 and Rule 19b–4 

thereunder,5 Investors Exchange LLC 

(‘‘IEX’’ or ‘‘Exchange’’) is filing with the 

Commission a proposed rule change to 

increase the fees assessed under 

specified circumstances for execution of 

orders that take liquidity during periods 

when the IEX System has determined 

that a ‘‘crumbling quote’’ exists with 

respect to the Protected National Best 

Bid (‘‘NBB’’) or Protected National Best 

Offer (‘‘NBO’’) for such security.6

The text of the proposed rule change 

is available at the Exchange’s Web site 

at www.iextrading.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 

self-regulatory organization 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 statement may be examined at 


sradovich on DSK3GMQ082PROD with NOTICES