53536 Federal Register / Vol. 82, No. 220 / Thursday, November 16, 2017 / Notices 

19 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3 15 U.S.C. 78q–1. 

4 17 CFR 240.17Ad–22(b)(1) and (2). 

5 15 U.S.C. 78q–1(b)(3)(F). 

6 17 CFR 240.17Ad–22(b)(1) and (2). 

7 17 CFR 240.17Ad–22(e)(6). 

8 17 CFR 240.17Ad–22(e)(6)(i) and (v). 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.19

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–24780 Filed 11–15–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–82043; File No. SR–LCH 

SA–2017–009] 

Self-Regulatory Organizations; LCH 

SA; Notice of Filing of Proposed Rule 

Change, Security-Based Swap 

Submission, or Advance Notice 

Relating to Wrong Way Risk Margin 

November 9, 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 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. 


asabaliauskas on DSKBBXCHB2PROD with NOTICES
Federal Register / Vol. 82, No. 220 / Thursday, November 16, 2017 / Notices 53537 

9 15 U.S.C. 78q–1(b)(3)(I). 10 17 CFR 200.30–3(a)(12). 

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/assetclasses/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. 

[FR Doc. 2017–24784 Filed 11–15–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[SEC File No. 270–173, OMB Control No. 

3235–0178] 

Proposed Collection; Comment 

Request 

Upon Written Request, Copies Available 

From: Securities and Exchange 

Commission, Office of FOIA Services, 

100 F Street NE., Washington, DC 

20549–2736 

Extension: 

Rule 31a–1 

Notice is hereby given that, pursuant 

to the Paperwork Reduction Act of 1995 

(44 U.S.C. 3501–3520), the Securities 

and Exchange Commission 

(‘‘Commission’’) is soliciting comments 

on the collections of information 

summarized below. The Commission 

plans to submit these existing 

collections of information to the Office 

of Management and Budget for 

extension. 

Rule 31a–1 (17 CFR 270.31a–1) under 

the Investment Company Act of 1940 

(the ‘‘Act’’) (15 U.S.C. 80a) is entitled 

‘‘Records to be maintained by registered 

investment companies, certain majorityowned subsidiaries thereof, and other 

persons having transactions with 

registered investment companies.’’ Rule 

31a–1 requires registered investment 

companies (‘‘funds’’), and every 

underwriter, broker, dealer, or 

investment adviser that is a majorityowned subsidiary of a fund, to maintain 

and keep current accounts, books, and 

other documents which constitute the 

record forming the basis for financial 

statements required to be filed pursuant 

to section 31 of the Act (15 U.S.C. 80a– 

30) and of the auditor’s certificates 

relating thereto. The rule lists specific 

records to be maintained by funds. The 

rule also requires certain underwriters, 

brokers, dealers, depositors, and 

investment advisers to maintain the 

records that they are required to 

maintain under federal securities laws. 

There are approximately 4,029 

investment companies registered with 

the Commission, all of which are 

required to comply with rule 31a–1. For 

purposes of determining the burden 

imposed by rule 31a–1, the Commission 

staff estimates that each fund is divided 

into approximately four series, on 

average, and that each series is required 

to comply with the recordkeeping 

requirements of rule 31a–1. Based on 

conversations with fund representatives, 

it is estimated that rule 31a–1 imposes 

an average burden of approximately 

1,750 hours annually per series for a 

total of 7,000 annual hours per fund. 


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