[Federal Register Volume 84, Number 98 (Tuesday, May 21, 2019)]
[Notices]
[Pages 23101-23103]
[FR Doc No: 2019-10516]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85869; File No. SR-CboeBZX-2019-040]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
the BZX Equities Fee Schedule To Correct an Inadvertent Drafting Error
Introduced in a Previous Rule Filing

May 15, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on May 1, 2019, Cboe BZX Exchange, Inc. (the ``Exchange'' or
``BZX'') 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 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

    Cboe BZX Exchange, Inc. (``BZX'' or the ``Exchange'') is filing
with the Securities and Exchange Commission (the ``Commission'') a
proposed rule change to amend the BZX Equities fee schedule to correct
an inadvertent drafting error introduced in a previous rule filing. The
text of the proposed rule change is attached as Exhibit 5 (sic).
    The text of the proposed rule change is also available on the
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, 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 the
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend the BZX
Equities fee schedule to correct an inadvertent drafting error
introduced in a previous rule filing that changed the terminology used
to describe certain connectivity products offered to Exchange members.
    On December 21, 2018, the Exchange filed a proposed rule change to
revise the nomenclature associated with logical port fees charged for
order entry, which were renamed to ``match capacity fees.'' \3\ The
purpose of that filing was to properly characterize the fees for order
entry logical ports as capacity fees to better reflect the service
offering of these products and shed additional light on how firms are
charged for connectivity. Although, as represented in the filing, no
changes to the Exchange's charges were proposed,\4\ the Exchange
thought that this was an important step to increase transparency around
its connectivity services. Specifically, the Exchange thought that
identifying its fees charged for order entry logical ports as capacity
fees, and providing associated data and analysis surrounding the use of
order entry logical ports would provide valuable information to the
Commission and the industry about the services provided by the Exchange
to firms that choose to access these services. To reflect this change
to the terminology used to describe order entry logical ports in the
BZX Equities fee schedule, the Exchange deleted a line item titled
``Logical Ports (excluding Purge Port, Multicast PITCH Spin Server Port
or GRP Port),'' and replaced it with a section titled ``Match Capacity
Fees,'' subject to the same monthly fee, but unfortunately did not
address the remaining logical ports used for other purposes.
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    \3\ See Securities Exchange Act Release No. 84963 (December 26,
2018), 84 FR 830 (January 31, 2019) (SR-CboeBZX-2018-095).
    \4\ For example, the filing repeatedly referenced changes to
``the nomenclature associated with the current logical port fees''
or ``proposed changes in terminology,'' and did not address any
changes related to logical ports used to deliver market data to
subscribers.
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    The Exchange understands that the deleted language should not have
been removed from the fee schedule in order to effect the nomenclature
change described in its December filing, as such language was not
previously limited to order entry logical ports. As described in a
number of prior filings, including the filing to initially introduce
this logical port line item in 2009,\5\ the deleted language previously
applied both to the order entry ports that were explicitly the subject
of the December filing, and a handful of other ports that were not
addressed in that filing, including drop ports and ports used for the
receipt of certain market data feeds. Specifically, the deleted section
had applied to Cboe Auction Feed Ports, FIXDROP Ports, Order Drop
Ports, Last Sale Ports, PITCH Ports, and TOP Ports.\6\ As a result, the
new nomenclature inserted for match capacity fees--which was adopted
solely with order entry connectivity in mind--does not quite capture
all of the other connectivity offerings included under this section.
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    \5\ See Securities Exchange Act Release No. 60586 (August 28,
2009), 74 FR 46256 (September 8, 2009) (SR-BATS-2009-026) (Approval
Order).
    \6\ All other logical ports, except for Purge Ports, Multicast
PITCH Spin Server, Multicast PITCH GRP Ports, and match capacity
allocations are currently offered free of charge.
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    The Exchange therefore proposes to add language back to this
section to properly account for drop and market data ports that have
been charged under the same heading as order entry connectivity since
2009. Specifically, the fee schedule would provide that other logical
ports (i.e., including Cboe Auction Feed Ports, FIXDROP Ports, Order
Drop Ports, Last Sale Ports, PITCH Ports, and TOP Ports) are subject to
a monthly fee of $550 per month, thereby ensuring that these fees are
identified separately from the match capacity fees charged for order
entry. The Exchange believes that this change would increase
transparency around its charges by fixing a drafting error introduced
when the Exchange renamed its order entry logical port charges.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent
with Section 6 of the Act,\7\ in general, and furthers the requirements
of Section 6(b)(4),\8\ in particular, as it is designed to provide for
the equitable allocation of reasonable dues, fees and other charges
among its members and other persons using its facilities. Specifically,
the Exchange believes that the proposed rule change is reasonable,
equitable, and not unfairly discriminatory as it would clarify the fees
charged for drop and market data ports. As an unintended result of a
drafting error in recent proposed rule change to change the
nomenclature associated with order entry connectivity, the BZX Equities
fee schedule is missing language that applied to certain other logical
ports. The Exchange believes that reinserting language that references
these other logical port options would reduce confusion around the
Exchange's charges and ensure that these fees are appropriately
referenced on the fee schedule. The fees described in the proposed
language are the same as the fees identified prior to the inadvertent
deletion of this language in the December filing, but the fee schedule
would be amended to explicitly list all of the ports charged under this
section in the interest of furthering transparency around the
Exchange's charges. The Exchange believes that these steps will help
ensure that its fee schedule fully and accurately represents the fees
charged for market data logical ports, as previously filed with the
Commission.
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    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. Rather, the proposed rule
change is designed to reduce potential confusion around the Exchange's
connectivity charges by reinstating a line item in the Exchange's fee
schedule that should not have been deleted when the Exchange changed
the nomenclature associated with order entry logical port fees, and
adding additional detail to this item that describes the products for
which those fees apply. The Exchange believes that this change would
increase transparency to the benefit of members and investors without
having any significant impact on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received on the proposed rule
change.

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

    The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \9\ and paragraph (f) of Rule 19b-4 \10\
thereunder. 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 will institute proceedings to determine whether
the proposed rule change should be approved or disapproved.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f).
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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-CboeBZX-2019-040 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-CboeBZX-2019-040. 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, 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 the Exchange. 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-
CboeBZX-2019-040, and should be submitted on or before June 11, 2019.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-10516 Filed 5-20-19; 8:45 am]
 BILLING CODE 8011-01-P


[Federal Register Volume 82, Number 128 (Thursday, July 6, 2017)]
[Notices]
[Pages 31364-31366]
[FR Doc No: 2017-14239]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81056; File No. SR-LCH SA-2017-005]

Self-Regulatory Organizations; LCH SA; Order Approving Proposed
Rule Change, as Amended by Amendment No. 1 Thereto, To Add Rules
Related to the Clearing of CDX.NA.HY CDS

June 30, 2017.

I. Introduction

    On April 28, 2017, 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'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change (SR-LCH SA-2017-005) to amend LCH
SA's CDS Margin Framework and CDSClear Default Fund Methodology in
order to permit LCH SA to clear CDS contracts on the CDX.NA.HY index.
On May 5, 2017, LCH SA filed Amendment No. 1.\3\ The proposed rule
change was published in the Federal Register on May 17, 2017.\4\ The
Commission received no comment letters regarding the proposed change.
For the reasons discussed below, the Commission is approving the
proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ LCH SA filed Amendment No. 1 to replace the initial filing
in its entirety in order to clarify certain changes to the CDSClear
Margin Framework.
    \4\ Securities Exchange Act Release No. 34-80666 (May 11, 2017),
82 FR 22699 (May 17, 2017) (SR-LCH SA-2017-005) (``Notice'').
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II. Description of the Proposed Rule Change

    LCH SA has proposed various changes to its CDS Margin Framework and
CDSClear Default Fund Methodology for the purpose of permitting LCH SA
to clear CDS contracts on the CDX.NA.HY index.

A. Changes to CDS Margin Framework

    With respect to the CDS Margin Framework, LCH SA proposed to amend
the short charge component of its margin methodology to provide a
description of the purpose of the short charge, noting that it is
intended to account for the probability of a credit event occurring
during the period from the default of a Clearing Member to liquidation
of the defaulting Clearing Member's portfolio, as well as to adjust the
method for calculating the short charge to account for CDX.NA.HY index
contracts. Under its current CDS Margin Framework, LCH SA calculates
the short charge component by taking the larger of (1) a ``Global Short
Charge,'' derived from the Clearing Member's top net short exposure
with respect to any CDS contract and its top net short exposure among
the three ``riskiest'' reference entities (of any type), i.e. those
that are most likely to default, in the Clearing Member's portfolio,
and (2) the top two net short exposures with respect to CDS contracts
on senior financial entities.\5\ LCH SA believes that high yield
entities are risker than senior financial entities, and as a result it
proposed to introduce a ``High Yield Short Charge'' that would replace
the top two net short exposures to CDS on senior financial entities in
its approach to calculating the short charge.\6\ Consequently, the
short charge under the proposed rule change would be the greater of (1)
the ``Global Short Charge,'' as described above, and (2) a ``High Yield
Short Charge,'' calculated from a member's top net short exposure (with
respect to high yield CDS) and its top two net short exposures among
the three ``riskiest'' reference entities in the high yield category in
the Clearing Member's portfolio.\7\
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    \5\ Notice, 82 FR at 22700.
    \6\ Id.
    \7\ Id.
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    LCH SA also proposed to make certain conforming changes throughout
Section 4.1.1 of the CDS Margin Framework, which describes the ``net
short exposure'' calculation, to refer to CDX.NA.HY contracts, as well
as to clarify that in order to calculate margin in Euros, all US dollar
denominated variables are converted to Euros utilizing the current USD/
Euro foreign exchange rate and calibrated haircut based upon historical
data. Furthermore, LCH SA proposed conforming changes to Section 4.1.2
of the CDS Margin Framework, which describes the ``top exposure''
component of the short charge and Section 4.1.3 of the CDS Margin
Framework, which describes the process by which LCH SA identifies the
``riskiest'' entities (of any type) in determining the short charge, to
incorporate terms for CDX.NA.HY index contracts and to clarify the
calculation as it applies to high yield indices. LCH SA also proposed
clarifying changes to Section 4.1.4 of the CDS Margin Framework to
summarize the calculation for the short charge amount.\8\
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    \8\ Id.
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    LCH SA proposed to amend the CDS Margin Framework by deleting
Section 4.3 in its entirety because the substance of that section would
be contained in other sections of the CDS Margin Framework as a result
of the proposed changes described above.\9\
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    \9\ Id.
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    In addition, LCH SA also proposed to amend Section 5.1 of the CDS
Margin Framework, which sets forth the wrong way risk (``WWR'')
component of LCH SA's margin methodology. According to LCH SA, the
current approach leverages the short charge framework by calculating
the top two net short exposures of financial entities in a Clearing
Member's portfolio following the calculation described above for the
short charge margin. LCH SA then compares these top two net short
exposures of financial entities to the Global Short Charge and imposes
the

greater of those two as the short charge, which addresses the WWR
arising from the correlation between a Clearing Member default and the
default(s) of the top two financial entities in the Clearing Member's
portfolio.\10\ The proposed rule change amends Section 5.1 of the CDS
Margin Framework to make the WWR component more explicit, such that,
when the top two net short exposures in respect of financial entities
exceeds the short charge margin, as amended to equal the greater of the
Global Short Charge and the High Yield Short Charge, LCH SA will charge
the incremental amount that is attributable to the top two financial
entities as part of the WWR Margin.\11\
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    \10\ Id.
    \11\ Id.
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    LCH SA further proposed to amend a heading in Section 3 and a table
in Section 3.1.1 to clarify that the summary of the margin framework
also applies to CDX HY contracts. Additional conforming changes in the
CDS Margin Framework were proposed with respect to Sections 5, 6, 8,
10, and 11 of the CDS Margin Framework to clarify that the those
sections also apply to high yield indices.\12\
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    \12\ Id.
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B. Changes to CDSClear Default Fund Methodology

    LCH SA also proposed changes to its CDSClear Default Fund
Methodology. Specifically, LCH SA proposed to amend Section 2.3 of the
CDSClear Default Fund Methodology to modify the existing stressed short
charge. Under its current approach, LCH SA calculates a stressed short
charge, which equals the greater of (1) the top net short exposure plus
the top two net short exposures among the three entities most likely to
default in the Clearing Member's portfolio, and (2) the top two net
short exposures which are senior financial entities plus the top net
short exposures among the three riskiest senior financial entities in
the Clearing Member's portfolio. Under the proposed rule change, LCH SA
will take the default of high yield entities into account and add a
third prong to the stressed short charge calculation which will take
the greater of (1) and (2) as described above in this paragraph, or (3)
the top two net short exposures which are high yield entities plus the
top two net short exposures among the three high yield entities most
likely to default in the Clearing Member's portfolio.\13\
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    \13\ Id.
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    Finally, LCH SA also proposed to amend Section 3.8 of the CDSClear
Default Fund Methodology, which describes the correlation between index
families and series, to reflect that additional data will be used.\14\
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    \14\ Id.
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III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \15\ directs the Commission to
approve a proposed rule of a self-regulatory organization if the
Commission finds that such proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to such organization. Section 17A(b)(3)(F) of the Act \16\
requires, in relevant part, that the rules of a registered clearing
agency be designed to promote the prompt and accurate clearance and
settlement of securities transactions and, to the extent applicable,
derivative agreements, contracts, and transactions. Rule 17Ad-22(b)(2)
\17\ requires, in relevant part, a registered clearing agency that
performs central counterparty services to establish, implement,
maintain and enforce written policies and procedures reasonably
designed to use margin requirements to limit its credit exposures to
participants under normal market conditions and use risk-based models
and parameters to set margin requirements. Rule 17Ad-22(b)(3) \18\
requires, in relevant part, a registered clearing agency that performs
central counterparty services to establish, implement, maintain and
enforce written policies and procedures reasonably designed to maintain
additional financial resources sufficient to withstand, at a minimum, a
default by the two participant families to which it has the largest
exposures in extreme but plausible market conditions where such
registered clearing agency acts as a central counterparty for security-
based swaps. Rule 17Ad-22(e)(4)(i) and (ii) \19\ require a covered
clearing agency to establish, implement, maintain and enforce written
policies and procedures reasonably designed to maintain sufficient
financial resources to cover its credit exposure to each participant
fully with a high degree of confidence, and for a covered clearing
agency involved in activities with a more complex risk profile,\20\
maintaining additional financial resources at the minimum to enable it
to cover a wide range of foreseeable stress scenarios that include, but
are not limited to, the default of the two participant families that
would potentially cause the largest aggregate credit exposure for the
covered clearing agency in extreme but plausible market conditions.
Finally, Rule 17Ad-22(e)(6)(i) \21\ requires a covered clearing agency
that provides central counterparty services to establish, implement,
maintain and enforce written policies and procedures reasonably
designed to cover its credit exposures to its participants by
establishing a risk-based margin system that, at a minimum considers,
and produces margin levels commensurate with, the risks and particular
attributes of each relevant product, portfolio and market.
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    \15\ 15 U.S.C. 78s(b)(2)(C).
    \16\ 15 U.S.C. 78q-1(b)(3)(F).
    \17\ 17 CFR 240.17Ad-22(b)(2).
    \18\ 17 CFR 240.17Ad-22(b)(3).
    \19\ 17 CFR 240.17Ad-22(e)(4)(i) and (ii).
    \20\ Rule 17Ad-22(a)(4)(i) defines a covered clearing agency
involved in activities with a more complex risk profile as a
clearing agency registered with the Commission under Section 17A of
the Act that provides central counterparty services for security-
based swaps. See 17 CFR 240.17Ad-22(a)(4)(i).
    \21\ 17 CFR 240.17Ad-22(e)(6)(i).
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    The Commission finds that the proposed rule change, which amends
LCH SA's CDS Margin Framework and CDSClear Default Fund Methodology to
permit LCH SA to clear CDS contracts on the CDX.NA.HY index, is
consistent with Section 17A of the Act and the applicable provisions of
Rule 17Ad-22 thereunder. By amending its CDS Margin Framework, LCH SA
amends the approach to its short charge component of its margin
methodology to consider the specific risks associated with, and
incorporate parameters addressing the risks, associated with clearing
contracts on the CDX.NA.HY index, and as a result, LCH SA will be able
to calculate margin requirements to cover its exposures associated with
clearing contracts on the CDX.NA.HY index. Therefore, the Commission
finds that the proposed rule changes are consistent with Rule 17Ad-
22(b)(2), 17Ad-22(e)(4)(i), and 17Ad-22(e)(6)(i).
    Additionally, by amending its CDSClear Default Fund Methodology to
change the manner in which it calculates its short charge to consider
the risks introduced by clearing contracts on the CDX.NA.HY index, the
Commission believes that LCH SA will be able to more appropriately
calculate and maintain the financial resources necessary to cover the
default of by the two participant families to which it has the largest
exposures in extreme but plausible market conditions. Therefore, the
Commission finds that the proposed rule change is consistent with the
requirements of Rule 17Ad-22(b)(3) and Rule 17Ad-22(e)(4)(ii).
    Because the proposed rule change amends LCH SA's CDS Margin
Framework and CDSClear Default Fund Methodology in such a manner as to

allow LCH SA to more appropriately take into consideration the risks
associated with clearing contracts on the CDX.NA.HY index, and to
collect margin and other financial resources that reflect such risks,
the Commission believes that the proposed changes are designed to
promote the prompt and accurate clearance and settlement of such
contracts. As a result, the Commission finds that the proposed rule
changes are consistent with Section 17A(b)(3)(F) of the Act.

IV. Conclusion

    It is therefore ordered pursuant to Section 19(b)(2) of the Act
that the proposed rule change (SR-LCH SA-2017-005), as amended by
Amendment No. 1, be, and hereby is, approved.\22\
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    \22\ In approving the proposed rule change, the Commission
considered the proposal's impact on efficiency, competition, and
capital formation. 15 U.S.C. 78c(f).

    For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2017-14239 Filed 7-5-17; 8:45 am]
BILLING CODE 8011-01-P