[Federal Register Volume 80, Number 221 (Tuesday, November 17, 2015)]
[Notices]
[Pages 71883-71887]
[FR Doc No: 2015-29218]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76405; File No. SR-MIAX-2015-63]

Self-Regulatory Organizations: Miami International Securities
Exchange LLC; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Delete Exchange Rule 610, Limitations on
Dealings

November 10, 2015.
    Pursuant to the provisions of 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 November 4, 2015, Miami International
Securities Exchange LLC (``MIAX'' or ``Exchange'') filed with the
Securities and Exchange Commission (``Commission'') a proposed rule
change as described in Items I, II, and III below, which Items have
been prepared by the Exchange. The Commission is publishing this notice
to solicit comments on the proposed rule change from interested
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange is filing a proposal to adopt a principles-based
approach to prohibit the misuse of material, non-public information by
Exchange Market Makers \3\ by deleting Exchange Rule 610, Limitations
on Dealings.
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    \3\ The term ``Market Makers'' refers to ``Lead Market Makers,''
``Primary Lead Market Makers'' and ``Registered Market Makers''
collectively. A Lead Market Maker (``LMM'') is a Member registered
with the Exchange for the purpose of making markets in securities
traded on the Exchange and that is vested with the rights and
responsibilities specified in Chapter VI of the Exchange Rules with
respect to Lead Market Makers. A Primary Lead Market Maker
(``PLMM'') is a Lead Market Maker appointed by the Exchange to act
as the Primary Lead Market Maker for the purpose of making markets
in securities traded on the Exchange. A Registered Market Maker
(``RMM'') is a Member registered with the Exchange for the purpose
of making markets in securities traded on the Exchange, who is not a
Lead Market Maker. See Exchange Rule 100.
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    The text of the proposed rule change is available on the Exchange's
Web site at http://www.miaxoptions.com/filter/wotitle/rule_filing, at
MIAX's principal office, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to adopt a principles-based approach to
prohibit the misuse of material, non-public information by Market
Makers by deleting Rule 610 (Limitations on Dealings). In so doing, the
Exchange would harmonize its rules amongst its Members \4\ relating to
protecting against the misuse of material, non-public information. The
Exchange believes that Rule 610 is no longer necessary because all
Members, including Market Makers, are subject to the Exchange's general
principles-based requirements governing the protection against the
misuse of material, non-public information, pursuant to Exchange Rule
303 (Prevention of the Misuse of Material Nonpublic Information), which
obviates the need for separately-prescribed requirements for a subset
of market participants on the Exchange.
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    \4\ The term ``Member'' means an individual or organization
approved to exercise trading rights associated with a Trading
Permit. Members are deemed ``members'' under the Exchange Act. See
Exchange Rule 100.
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Background
    The Exchange has three classes of registered Market Makers.
Pursuant to Rule 600, a Market Maker is a Member with Registered
Options Traders that is registered with the Exchange for the purpose of
making transactions as a dealer-specialist. As the rule further
provides, a Market Maker can be either a RMM, a LMM or a PLMM. All
Market Makers are subject to the requirements of Rules 603 and 604,
which set forth the obligations of Market Makers, particularly relating
to quoting.
    Rule 603 specifies the obligations of Market Makers, which include
making markets ``that, absent changed market conditions, will be
honored for the number of contracts entered into the Exchange's System
in all series of options classes to which the Market Maker is
appointed.'' The quoting obligations of Market Makers are set forth in
Rule 604. Rules 603 and 604

describe the heightened obligations of a PLMM as distinguished from
other Market Makers. Importantly, all Market Makers have access to the
same information in the order book that is available to all other
market participants. Moreover, none of the Exchange's Market Makers
have agency obligations to the Exchange's order book.
    Notwithstanding that Market Makers have access to the same Exchange
trading information as all other market participants on the Exchange,
the Exchange has specific rules governing how Market Makers may
operate. Rule 610(a) provides that ``[n]o Member, other than a Market
Maker acting pursuant to Rule 603, limited partner, officer, employee,
approved person(s), who is affiliated with a Market Maker or Member,
shall, during the period of such affiliation, purchase or sell any
option in which such Market Maker is appointed for any account in which
such person(s) has a direct or indirect interest.'' Rule 610(b) further
provides that an approved person or Member affiliated with a Member is
not subject to the restrictions in Rule 610(a) if the affiliated Market
Maker implements detailed Exchange-approved procedures to restrict the
flow of material, non-public information to such affiliated party. The
Exemption Guidelines set forth in Rule 610(e) through (j) outline the
organizational structure of the so-called ``Chinese Wall'' procedures
which are also referred to as an ``Information Barrier'', which a
Market Maker must implement to be exempt from the requirements of Rule
610(a). The Information Barrier is meant to ensure that an affiliate of
a Market Maker will not have access to material, non-public information
and that a Market Maker will not misuse material, non-public
information obtained from an affiliated Member.
Proposed Rule Change
    The Exchange believes that the Exemption Guidelines in Rule 610 for
Market Makers are no longer necessary and proposes to delete the Rule.
Rather, the Exchange believes that Rule 303 governing the misuse of
material, non-public information provides for an appropriate,
principles-based approach to prevent the market abuses Rule 610 is
designed to address. Specifically Rule 303 requires every Member to
establish, maintain and enforce written procedures reasonably designed,
taking into consideration the nature of such Member's business, to
prevent the misuse of material, non-public information by such Member
or persons associated with such Member. For purposes of this
requirement, the misuse of material, non-public information includes,
but is not limited to, the following:
    (a) Trading in any securities issued by a corporation, or in any
related securities or related options or other derivative securities,
while in possession of material, non-public information concerning that
issuer; or
    (b) Trading in a security or related options or other derivative
securities, while in possession of material non-public information
concerning imminent transactions in the security or related securities;
or
    (c) Disclosing to another person or entity any material, non-public
information involving a corporation whose shares are publicly traded or
an imminent transaction in an underlying security or related securities
for the purpose of facilitating the possible misuse of such material,
non-public information.\5\
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    \5\ See Exchange Rule 303, Interpretations and Policies .01.
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    Because Market Makers are already subject to the requirements of
Rule 303 and because Market Makers do not have any trading or
information advantage over other Members, the Exchange does not believe
that it is necessary to separately require specific limitations on
dealings between Market Makers and their affiliates. Deleting Rule 610
would provide Market Makers and Members with the flexibility to adapt
their policies and procedures as reasonably designed to reflect changes
to their business model, business activities, or the securities market
in a manner similar to how Members on the Exchange currently operate
and consistent with Rule 303.
    As noted above, PLMMs are distinguished under Exchange rules from
other Market Makers only to the extent that PLMMs have heightened
obligations. However, none of these heightened obligations provides
different or greater access to non-public information than any other
market participant on the Exchange.\6\ Specifically, Market Makers on
the Exchange do not have access to trading information provided by the
Exchange, either at, or prior to, the point of execution, that is not
made available to all other market participants on the Exchange in a
similar manner. Further, as noted above, Market Makers on the Exchange
do not have any agency responsibilities for orders on the order book.
Accordingly, because Market Makers do not have any trading advantages
at the Exchange due to their market role, the Exchange believes that
they should be subject to the same rules as Members regarding the
protection against the misuse of material, non-public information,
which in this case, is existing Rule 303.
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    \6\ See Exchange Rules 603 and 604.
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    The Exchange notes that even with this proposed rule change,
pursuant to Rule 303, a Market Maker would still be obligated to ensure
that its policies and procedures reflect the current state of its
business and continue to be reasonably designed to achieve compliance
with applicable federal securities law and regulations, and with
applicable Exchange rules, including being reasonably designed to
protect against the misuse of material, non-public information. While
an Information Barrier would not specifically be required under the
proposal, Rule 303 already requires that a Member consider its business
model or business activities in structuring its policies and
procedures, which may dictate that an information barrier or other type
of functional separation be part of the set of policies and procedures
that would be reasonably designed to achieve compliance with applicable
securities law and regulations, and with applicable Exchange rules.
    The Exchange is not proposing to change what is considered to be
material, non-public information, and thus does not expect there to be
any changes to the types of information that an affiliated person of a
Market Maker could share with such Market Maker. In that regard, the
proposed rule change will not permit an Electronic Exchange Member to
have access to any non-public order or quote information of the
affiliated Market Maker, including hidden or undisplayed size or price
information of such orders and quotes. Market Makers are not allowed to
post hidden or undisplayed orders and quotes on the Exchange. Members
do not expect to receive any additional order or quote information as a
result of this proposed rule change.
    Further, the Exchange does not believe that there will be any
material change to existing Member Information Barriers as a result of
removal of the Exchange's pre-approval requirements. In fact, the
Exchange anticipates that eliminating the pre-approval requirement
should facilitate implementation of changes to Member Information
Barriers as necessary to protect against the misuse of material, non-
public information. The Exchange also suggests that the pre-approval
requirement is unnecessary because Market Makers now do not have agency
responsibilities to the book, or time and place information advantages
because of

their market role.\7\ Moreover, the policies and procedures of Market
Makers, including those relating to Information Barriers, would be
subject to review by FINRA, on behalf of the Exchange, pursuant to a
Regulatory Services Agreement.
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    \7\ Member applicants are required to have information barrier
policies and procedures in place and must represent that they comply
with this requirement in their application for membership to MIAX.
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    The Exchange further notes that under Rule 303, a Member would be
able to structure its firm to provide for its options Market Makers, as
applicable, to be structured with its equities and customer-facing
businesses, provided that any such structuring would be done in a
manner reasonably designed to protect against the misuse of material,
non-public information. For example, pursuant to Rule 303 a Market
Maker on the Exchange could be in the same independent trading unit, as
defined in Rule 200(f) of Regulation SHO,\8\ as an equities market
maker and other trading desks within the firm, including options
trading desks, so that the firm could share post-trade information to
better manage its risk across related securities. The Exchange believes
it is appropriate, and consistent with Rule 303 and Section 15(g) of
the Act \9\ for a firm to share options position and related hedging
position information (e.g., equities, futures, and foreign currency)
within a firm to better manage risk on a firm-wide basis. The Exchange
notes, however, that if so structured, a firm would need to have
policies and procedures, including Information Barriers as applicable,
reasonably designed to protect against the misuse of material, non-
public information, and specifically customer information, consistent
with Rule 303.
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    \8\ 17 CFR part 242.200(f).
    \9\ 15 U.S.C. 78o(g).
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    The Exchange believes that the proposed reliance on the principles-
based Rule 303 would ensure that a Member that operates a Market Maker
would be required to protect against the misuse of any material, non-
public information. As noted above, Rule 303 already requires that
firms refrain from trading while in possession of material, non-public
information concerning imminent transactions in the security or related
product. The Exchange believes that moving to a principles-based
approach rather than prescribing how and when to wall off a Market
Maker from the rest of the firm would provide Members operating as
Market Makers with appropriate tools to better manage risk across a
firm, including integrating options positions with other positions of
the firm or, as applicable, by the respective independent trading unit.
Specifically, the Exchange believes that it is appropriate for risk
management purposes for a Member operating a Market Maker to be able to
consider both options Market Maker traded positions for purposes of
calculating net positions consistent with Rule 200 of Regulation SHO,
calculating intra-day net capital positions, and managing risk
generally, and in compliance with Rule 15c3-5 under the Act (the
``Market Access Rule'').\10\ The Exchange notes that any risk
management operations would need to operate consistent with the
requirement to protect against the misuse of material, non-public
information.
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    \10\ 17 CFR part 240.15c3-5.
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    The Exchange further notes that if Market Makers are integrated
with other market making operations, they would be subject to existing
rules that prohibit Members from disadvantaging their customers or
other market participants by improperly capitalizing on a member
organization's access to the receipt of material, non-public
information. As such, a member organization that integrates its market
maker operations together with equity market making would need to
protect customer information consistent with existing obligations to
protect such information. The Exchange has rules prohibiting Members
from disadvantaging their customers or other market participants by
improperly capitalizing on the Members' access to or receipt of
material, nonpublic information. For example, Exchange Rule 1308
(Supervision of Accounts) requires Members to develop and maintain
adequate controls over each of its business activities and to be
responsible for internal supervision and control of the organization
and compliance with securities laws and regulations.\11\ Additionally,
Rule 301 (Just and Equitable Principles of Trade) prevents a person
associated with a Member, who has knowledge of all material terms and
conditions of (i) an order and a solicited order, (ii) an order being
facilitated, or (iii) orders being crossed; the execution of which are
imminent, to enter, based on such knowledge, an order to buy or sell an
option for the same underlying security as any option that is the
subject of the order, or an order to buy or sell the security
underlying such class, or an order to buy or sell any related
instrument unless certain circumstances are met.\12\
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    \11\ See Exchange Rule 1308.
    \12\ See Exchange Rule 301, Interpretations and Policies .02.
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2. Statutory Basis
    MIAX believes that its proposed rule change is consistent with
Section 6(b) of the Act \13\ in general, and furthers the objectives of
Section 6(b)(5) of the Act \14\ in particular, in that it is designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in facilitating transactions in
securities, to remove impediments to and perfect the mechanisms of a
free and open market and a national market system and, in general, to
protect investors and the public interest.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change would remove
impediments to and perfect the mechanism of a free and open market by
adopting a principles-based approach to permit a Member operating a
Market Maker to maintain and enforce policies and procedures to, among
other things, prohibit the misuse of material, non-public information
and eliminate restrictions on how a Member structures its market making
operations. The Exchange notes that the proposed rule change is based
on an approved rule of the Exchange to which Market Makers are already
subject, Rule 303, thus Market Makers would continue to be subject to
current Exchange rules and to the requirements under the Act \15\ for
protecting material, non-public order information. The Exchange
believes that the proposed rule change would remove impediments to and
perfect the mechanism of a free and open market because it would
harmonize the Exchange's approach to protecting against the misuse of
material, non-public information and no longer subject Market Makers to
additional requirements. The Exchange does not believe that the
existing requirements applicable to Market Makers are narrowly tailored
to their respective roles because neither market participant has access
to Exchange trading information in a manner different from any other
market participant on the Exchange and they do not have agency
responsibilities to the order book.
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    \15\ See, e.g., 15 U.S.C. 78o(g).
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    The Exchange further believes the proposal is designed to prevent
fraudulent and manipulative acts and practices and to promote just and
equitable principles of trade because existing rules make clear to
Market Makers and Members the type of conduct that is prohibited by the
Exchange. While the proposal

eliminates specific requirements relating to the misuse of material,
non-public information requiring pre-approval by the Exchange, Market
Makers and Members would remain subject to existing Exchange rules
requiring them to establish and maintain systems to supervise their
activities, and to create, implement, and maintain written procedures
that are reasonably designed to comply with applicable securities laws
and Exchange rules, including the prohibition on the misuse of
material, non-public information.
    The Exchange notes that the proposed rule change would still
require that Members operating Market Makers maintain and enforce
policies and procedures reasonably designed to ensure compliance with
applicable federal securities laws and regulations and with Exchange
rules. Even though there would no longer be pre-approval of Market
Maker Information Barriers, any Market Maker's written policies and
procedures would continue to be subject to oversight by the Exchange
and therefore the elimination of prescribed restrictions should not
reduce the effectiveness of the Exchange rules to protect against the
misuse of material, non-public information. Rather, Members will be
able to utilize a flexible, principles-based approach to modify their
policies and procedures as appropriate to reflect changes to their
business model, business activities, or to the securities market
itself. Moreover, while specified Information Barriers may no longer be
required, a Member's business model or business activities may dictate
that an Information Barrier or functional separation be part of the set
of policies and procedures that would be reasonably designed to achieve
compliance with applicable securities laws and regulations, and with
applicable Exchange rules. The Exchange therefore believes that the
proposed rule change will maintain the existing protection of investors
and the public interest that is currently applicable to Market Makers,
while at the same time removing impediments to and perfecting a free
and open market by moving to a principles-based approach to protect
against the misuse of material non-public information.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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. On the contrary, the
Exchange believes that the proposal will enhance competition by
allowing Market Makers to comply with applicable Exchange rules in a
manner best suited to their business models, business activities, and
the securities markets, thus reducing regulatory burdens while still
ensuring compliance with applicable securities laws and regulations and
Exchange rules. The Exchange believes that the proposal will foster a
fair and orderly marketplace without being overly burdensome upon
Market Makers.
    Moreover, the Exchange believes that the proposed rule change would
eliminate a burden on competition for Members which currently exists as
a result of disparate rule treatment between the options and equities
markets regarding how to protect against the misuse of material, non-
public information. For those Members that are also members of equity
exchanges, their respective equity market maker operations are now
subject to a principles-based approach to protecting against the misuse
of material non-public information.\16\ The Exchange believes it would
remove a burden on competition to enable Members to similarly apply a
principles-based approach to protecting against the misuse of material,
non-public information in the options space. To this end, the Exchange
notes that Rule 303 still requires a Member that operates as a Market
Maker on the Exchange to evaluate its business to assure that its
policies and procedures are reasonably designed to protect against the
misuse of material, non-public information. However, with this proposed
rule change, a Member that trades equities and options could look at
its firm more holistically to structure its operations in a manner that
provides it with better tools to manage its risks across multiple
security classes, while at the same time protecting against the misuse
of material non-public information.
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    \16\ See Securities Exchange Act Release Nos. 60604 (Sept. 2,
2009), 76 FR 46272 (Sept. 8, 2009) (SR-NYSEArca-2009-78) (Order
approving elimination of NYSE Arca rule that required market makers
to establish and maintain specifically prescribed information
barriers, including discussion of NYSE Arca and Nasdaq rules)
(``Arca Approval Order''); 61574 (Feb. 23, 2010), 75 FR 9455 (Mar.
2, 2010) (SR-BATS-2010-003) (Order approving amendments to BATS Rule
5.5 to move to a principles-based approach to protecting against the
misuse of material, non-public information, and noting that the
proposed change is consistent with the approaches of NYSE Arca and
Nasdaq) (``BATS Approval Order''); and 72534 (July 3, 2014), 79 FR
39440 (July 10, 2014) (SR-NYSE-2014-12) (Order approving amendments
to NYSE Rule 98 governing designated market makers to move to a
principles-based approach to prohibit the misuse of material
nonpublic information) (``NYSE Approval Order'').
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days after the date of the filing, or such
shorter time as the Commission may designate, it has become effective
pursuant to 19(b)(3)(A) of the Act \17\ and Rule 19b-4(f)(6) \18\
thereunder.
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or 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<EMAIL_ADDRESS>Please include
File Number SR-MIAX-2015-63 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.

All submissions should refer to File Number SR-MIAX-2015-63. 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 20549-1090, on official business days between the hours of 10:00
a.m. and 3:00 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; 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-MIAX-2015-63 and
should be submitted on or before December 8, 2015.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-29218 Filed 11-16-15; 8:45 am]
 BILLING CODE 8011-01-P


[Federal Register Volume 85, Number 211 (Friday, October 30, 2020)]
[Notices]
[Pages 68935-68937]
[FR Doc No: 2020-24022]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90270; File No. SR-LCH SA-2020-006]

Self-Regulatory Organizations; LCH SA; Notice of Filing of
Proposed Rule Change Relating to the Amendments of LCH SA Risk
Liquidity Modeling Framework

October 26, 2020.
    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 20, 2020, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change

    Banque Centrale de Compensation, which conducts business under the
name LCH SA (``LCH SA''), is proposing to amend its Liquidity Risk
Modeling Framework (the ``Framework'') in order to address more
accurately the liquidity requirements in the event of the assignment
and exercise of equity American options (the ``Proposed Rule Change'').

    The text of the proposed rule change has been annexed as Exhibit
5.\3\
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    \3\ All capitalized terms not defined herein have the same
definition as in the CDS Clearing Rule Book, Supplement or
Procedures, as applicable.
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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
    On December 3, 2019, Banque Centrale de Compensation, which
conducts business under the name LCH SA (``LCH SA''), filed with the
Securities and Exchange Commission (``Commission''), pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\4\
and Rule 19b-4 thereunder \5\ the filing LCH SA-2019-007 to amend its
Framework. This proposed rule change was duly approved by the
Commission on January 24, 2020.\6\
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    \4\ 15 U.S.C. 78s(b)(1).
    \5\ 17 CFR 240.19b-4
    \6\ Self-Regulatory Organizations; LCH SA; Order Approving
Proposed Rule Change Relating to Amendments to LCH SA's Liquidity
Risk Modelling Framework; Exchange Act Release No. 88039 (Jan. 24,
2020), 85 FR 5489 (Jan. 30, 2020) (LCH SA-2019-007).
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    LCH SA is now proposing to amend the Framework in order to address
one recommendation made by the independent model validation team during
the 2018/2019 review.
    The purpose of the enhancement is to include, from a liquidity
perspective, the funding risk arising from the physical settlement
linked to the exercise of American options under stressed liquidity
conditions prior to expiry. This is an extension of the scope as
American and European options exercise at expiry is already covered by
the current approved Framework.
    Because equity American options can be exercised before expiry,
there is a risk of assignment and exercise of Equity American options
at any time before expiry when the 2 largest clearing members in terms
of liquidity needs for the covered clearing agency (Cover2 members) may
start facing liquidity issues. During that period, the covered clearing
agency could, as a result, observe an increase in the liquidity needs
linked to the settlement of equity American options. This concern needs
to be modelled and tackled within the liquidity coverage ratio
(``LCR'') which is the ratio of assets available over the liabilities
of LCH SA under the stressed scenario of the default of the 2 largest
clearing members (in terms of liquidity needs).
    This means that on a daily basis the LCR will identify all the
potential positions that are in the money or at the money on the day of
the computation and on the next business day as well. Then, given the
potential option exercise, it will generate a liquidity need.
    In practice, the daily process will work as follows:
     Computation of the liquidity needs coming from the equity
American options that are in the money or at the money, by applying no
market stress.
     Computation of the liquidity needs coming from the options
that are in the money or at the money, by applying a stress scenario to
the equities.
     We will select the positions consistent with the 2 largest
clearing members in terms of liquidity needs for both modes described
above and will retain the most punitive one.
     This amount will then be added to the current cash equity
settlement amount in the LCR.
    A six month back test from May to November 2019 showed the impact
on the LCH SA LCR is less than 0.5% with the largest impact being 0.86%
and occurred on the 13th of November 2019. LCR is an internal indicator
computed at the clearing house level and there is no specific impact on
any particular Clearing Member.
    In order to introduce the Proposed Rule Change, LCH SA will need to
slightly modify the Framework. The term ``expiry'' will be replaced by
``exercise'' in both sections <IP_ADDRESS> and 5.3.4 and the term ``at
expiry'' will be replaced by ``anytime by defaulting members in order
to raise liquidity'' in the paragraph Option Expiry of section <IP_ADDRESS>.
(b) 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
\7\ (the ``Act'') and the regulations thereunder, including the
standards under Rule 17Ad-22.\8\ In particular, Section 17(A)(b)(3)(F)
\9\ of the Act requires, among other things, that the rules of a
clearing agency be designed to promote the prompt and accurate
clearance and settlement of securities transactions and derivative
agreements, contracts, and transactions and to assure the safeguarding
of securities and funds which are in the custody or control of the
clearing agency or for which it is responsible.\10\ As described above,
LCH SA is proposing to amend the Framework to address specifically LCH
SA's liquidity requirements in the event of the assignment and exercise
of equity American options involving a Defaulting Clearing Member
during any liquidation of such clearing member. The proposed amendment
will assist LCH SA in defining more accurately its liquidity
requirements by assuring that LCH SA will maintain appropriate levels
of liquidity in the event of the assignment and exercise of such
American options involving a Defaulting Clearing Member. By
anticipating and ensuring that LCH SA meets its liquidity needs in such
case, the proposed rule change would help ensure that LCH SA is able to
meet its financial obligations and would allow LCH SA to continue to
meet its obligation to promptly and accurately clear and settle
securities transactions in such situations. By taking into account the
funding risk that may arise prior to expiry of American options, the
Proposed Rule Change is also helping to safeguard the securities and
funds in LCH SA's control and maintain an effective liquidity risk
management. For these reasons, LCH SA believes that the Proposed Rule
Change is consistent with Section 17A(b)(3)(F) of the Act.
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    \7\ 15 U.S.C. 78q-1.
    \8\ 17 CFR 240.17Ad-22.
    \9\ 15 U.S.C. 78q-1(b)(3)(F).
    \10\ 15 U.S.C. 78q-1(b)(3)(F).
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    Further, Rule 17Ad-22(e)(7) requires a covered clearing agency to
``effectively measure, monitor, and manage the liquidity risk that
arises in or is borne by the covered clearing agency, including
measuring, monitoring, and managing its settlement and funding flows on
an ongoing and timely basis, and its use of intraday liquidity''.\11\
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    \11\ 17 CFR 240.17Ad-22(e)(7).
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    Regulation 17dA-22(e)(4)(ii) also requires a covered clearing
agency that is involved in activities with a more complex risk profile,
e.g., that provides clearing services for security-based swaps, to
maintain and enforce written policies and procedures reasonably
designed to effectively ``measure, monitor, and manage its credit
exposures from its payment, clearing and settlement processes'' to
assure that it maintains additional financial

resources to enable it to cover a wide range of foreseeable stress
scenarios that include the default of the two participant family
clearing members that would potentially cause the largest aggregate
credit exposure for the covered clearing agency in extreme but
plausible market conditions.\12\
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    \12\ 17 CFR 240.17Ad-22(e)(4)(ii).
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    As noted above, the amended Framework is designed to enhance LCH
SA's to measure, monitor, and manage the liquidity risk that may arise
in connection with its activities as a covered clearing agency. As such
the amendments to the Framework regarding LCH SA's liquidity
requirements in the event of the assignment and exercise of equity
American options involving a defaulting clearing member so that LCH SA
can also maintain sufficient liquid resources at the minimum in all
relevant currencies to effect the relevant settlement process of
payment obligations with a higher degree of confidence are consistent
with the requirements of Regulation 17dA-22(e)(4)(ii) and 17dA-
22(e)(7).\13\
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    \13\ 17 CFR 240.17Ad-22(e)(4)(ii) and 17dA-22(e)(7).
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    Regulation 17dA-22(e)(4)(i) and (vi)(A) requires a clearing agency
to maintain and enforce written policies and procedures reasonably
designed to conduct stress testing of its total financial resources
once each day using standard predetermined parameters and assumptions
to assure that it has sufficient financial resources to cover its
credit exposure to each participant fully with a high degree of
confidence.\14\
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    \14\ 17 CFR 240.17Ad-22(e)(4)(i) and (vi)(A).
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    As discussed above, by clarifying the daily process for computation
of the liquidity needs coming from the physical settlement linked to
the exercise of equity American options under stressed liquidity
conditions, the proposed amendments enhance LCH SA's written policies
and procedures with regard to stress testing practices and thereby
assures that LCH SA maintains sufficient additional financial resources
to enable it to cover a wide range of stress scenarios that include the
default of the two participant family clearing members that would
potentially cause the largest aggregate credit exposure for LCH SA in
extreme but plausible market conditions. As such, therefore, the
proposed amendments, therefore, are consistent with the requirements of
Regulation 17dA-22(e)(4)(i) and (vi)(A).\15\
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    \15\ Id.
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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.\16\ LCH SA does
not believe the Proposed Rule Change would have any impact, or impose
any burden, on competition. The Proposed Rule Change does not address
any competitive issue or have any impact on the competition among
central counterparties. LCH SA operates an open access model, and the
Proposed Rule Change will have no effect on this model for any clearing
member.
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    \16\ 15 U.S.C. 78q-1(b)(3)(I).
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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<EMAIL_ADDRESS>Please include
File Number SR-LCH SA-2020-006 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-2020-006. 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 website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of LCH SA and on LCH SA's website
at: https://www.lch.com/resources/rules-and-regulations/proposed-rule-changes-0.
    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-2020-006 and should
be submitted on or before November 20, 2020.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-24022 Filed 10-29-20; 8:45 am]
BILLING CODE 8011-01-P