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###### Securities and Exchange Commission

          - [Release No. 34-82043; File No. SR-LCH SA-2017-009]

                    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 October 30, 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 Reference Guide: CDS Margin Framework (“CDSClear Margin Framework” or “Framework”) to adjust the wrong way risk (“WWR”) margin component of the Framework to more appropriately address offsets between currencies when calculating WWR margin.

## 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 WWR component of the Framework is designed to cover the anticipated financial contagion effect that would arise in case of a clearing member being declared in default. The current WWR margin formula acknowledges offsets as between currencies by allowing offset between WWR and right way risk (“RWR”). Specifically, a WWR currency offset is applied as the greater of: (x) the WWR amount in Euros minus the RWR amount in Euros, where non-Euro amounts are converted to Euros using a foreign exchange (“FX”) rate plus or minus a haircut; and (y) the WWR amount in Euros multiplied by 1 minus a factor, which represents the correlation between European and U.S. financial institutions by calculating the average historical cross correlation of credit spreads on credit default swaps (“CDS”) in respect of all pairs of European and U.S. financial institutions that are clearing members. Under the current calculation, if one currency has WWR and the other has RWR, LCH SA would compare the WWR amount as offset by the RWR to the WWR amount as reduced by taking the correlation factor into account and take the greater of the two. As a result, either the full amount of RWR is considered as offsetting the WWR, or only a portion of the WWR is taken into account without any regard to the expected amount of RWR.

LCH SA believes that it is appropriate to consider the offset between the WWR amount and RWR amount but it would not be appropriate to apply the correlation factor to discount the WWR amount while also allowing the RWR to offset the WWR amount to its full extent. To be conservative, LCH SA believes that it is appropriate to apply the correlation factor to the RWR amount when using RWR to offset the WWR amount. Accordingly, LCH SA proposes to modify the WWR currency offset formula in the Framework to be the greater of: (i) the WWR amount in Euros, where such amounts are converted to Euros using an FX rate plus or minus a haircut, minus (ii) the RWR amount multiplied by the 10-year average historical correlation of credit spreads on CDS in respect of European and U.S. financial institutions; and zero. As of April 2016, the 10-year average historical correlation of credit spreads on CDS in respect of European and U.S. financial institutions was set to 48 percent.

Under this approach, RWR would never completely offset WWR and instead would be discounted based on the average of observed correlations of CDS credit spreads in respect of European and U.S. financial institutions. LCH SA believes that this change rationalizes the WWR currency offset and results in a more conservative WWR margin calculation.

#### 2. Statutory Basis

                    LCH SA believes that the proposed rule change is consistent with the requirements of Section 17A of the Securities Exchange Act of 1934 [3]                                          (the “Act”) and the regulations thereunder, including the standards under Rule 17Ad-22(b)(1) and (2).[4]                                          Specifically, in accordance with Section 17(A)(b)(3)(F),[5]                                          LCH SA believes that the proposed rule change will assure the safeguarding of securities and funds which are in the custody or control of the clearing agency or for which it is responsible, in that the proposed rule change is designed to rationalize the WWR currency offset and more conservatively calculate the WWR margin with respect to a clearing member. Therefore, LCH SA believes that the proposed rule change is consistent with the requirement of safeguarding securities and funds in Section 17(A)(b)(3)(F) of the Act and the requirements of maintaining margin and limiting a clearing agency's exposures to potential losses from participants' defaults under normal market conditions in Rule 17Ad-22(b)(1) and (2).[6] 

                    Moreover, LCH SA believes that the proposed rule change is consistent with the requirements in Rule 17Ad-22(e)(6).[7]                                          Rule 17Ad-22(e)(6)(i) and (v) require 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, among other things, considers and produces margin levels commensurate with, the risks and particular attributes of each relevant product, portfolio, and market, and uses an appropriate method for measuring credit exposure that accounts for relevant product risk factors and portfolio effects across products.[8]                                          WWR is an important risk factor for clearing CDS products. As noted above, the proposed rule change rationalizes the WWR currency offset and more conservatively calculates WWR margin.                           ( print page 53537)                        Therefore, LCH SA believes that the proposed rule change is consistent with Rule 17Ad-22(e)(6)(i) and (v).                

### 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.[9]                                          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. While the proposed rule change may result in higher WWR margin charges on participants, the revisions to the margin methodology will uniformly apply across all participants. In addition, as stated above, the proposed rule change is consistent with the applicable requirements of the Act and is appropriate in order to more conservatively calculate WWR margin. Therefore, LCH SA does not believe that the proposed rule change imposes 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-2017-009 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-2017-009. 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/​asset-classes/​cdsclear.*

                    All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-LCH SA-2017-009 and should be submitted on or before December 7, 2017.                                    

                        For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.10

Eduardo A. Aleman,

Assistant Secretary.

# Footnotes

1.                             15 U.S.C. 78s(b)(1).                    
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2.                             17 CFR 240.19b-4.                    
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3.                             15 U.S.C. 78q-1.                    
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4.                             17 CFR 240.17Ad-22(b)(1) and (2).                    
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5.                             15 U.S.C. 78q-1(b)(3)(F).                    
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6.                             17 CFR 240.17Ad-22(b)(1) and (2).                    
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7.                             17 CFR 240.17Ad-22(e)(6).                    
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8.                             17 CFR 240.17Ad-22(e)(6)(i) and (v).                    
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9.                             15 U.S.C. 78q-1(b)(3)(I).                    
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10.                                 17 CFR 200.30-3(a)(12).                        
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[FR Doc. 2017-24784 Filed 11-15-17; 8:45 am]

 BILLING CODE 8011-01-P