[Federal Register Volume 76, Number 211 (Tuesday, November 1, 2011)]
[Notices]
[Pages 67512-67514]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-28213]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65637; File No. SR-CME-2011-12]
Self-Regulatory Organizations; Chicago Mercantile Exchange,
Inc.; Notice of Filing and Order Granting Accelerated Approval of
Proposed Rule Change To Expand Its OTC FX Swaps Clearing Offering
October 26, 2011.
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 17, 2011, the Chicago Mercantile Exchange Inc. (``CME'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change described in Items I and II below, which items
have been prepared primarily by CME. The Commission is publishing this
Notice and Order to solicit comments on the proposed rule change from
interested persons and to approve the proposed rule change on an
accelerated basis.
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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 Terms of Substance of
the Proposed Rule Change
The proposed rule changes amend current CME rules to expand its
cleared-only, foreign currency (``FX'') swaps offering to support the
introduction of (1) Twenty-six new foreign FX currency derivatives for
over-the counter (``OTC'') cash settlement; and (2) eleven new FX non-
deliverable forward transaction currency pairs for traditional, OTC
cash settlement. Both types of new FX derivatives products will be
offered as cleared-only products.
The text of the proposed rule change is available on CME's Web site
at http://www.cmegroup.com, at the principal office of CME, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, CME included statements
concerning the purpose 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 III below. CME 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 Purpose of, and
Statutory Basis for, the Proposed Rule Change
CME currently offers clearing for certain U.S. Dollar/Chilean Peso
(``USD/CLP'') spot, forward and swap contracts that are executed
between two counterparties on an over-the-counter (``OTC'') basis.
These products, described in CME Rule 274H, are listed for clearing-
only; after two counterparties submit qualifying transactions to CME,
the transactions are novated to the CME Clearing House. For purposes of
CME Rules, the minimum-fluctuations currency is the Chilean peso and
the clearing-unit currency is the U.S. dollar.
CME's proposed rule changes are intended to amend certain rules to
support the introduction of additional cleared-only OTC foreign
currency derivatives. More specifically, the proposed filing would add:
(1) Twenty-six new foreign exchange (``FX'') currency derivatives for
over-the counter (``OTC'') cash settlement; and (2) eleven new FX non-
deliverable forward (``NDF'') transaction currency pairs for
traditional, OTC cash settlement. As mentioned above, both categories
of new FX derivatives products will be offered as cleared-only
products.
The twenty-six new FX pairs are branded as CME WM/Reuters spot,
forward and swap products. They include the following currency pairs:
GBP/USD; USD/CAD; USD/JPY; USD/CHF; AUD/USD; USD/MXN; NZD/USD; USD/ZAR;
EUR/USD; USD/NOK; USD/SEK; USD/CZK; USD/HUF; USD/PLN; USD/ILS; USD/TRY;
USD/DKK; EUR/GBP; EUR/JPY; EUR/CHF; AUD/JPY; CAD/JPY; EUR/AUD; USD/HKD;
USD/SGD; and USD/THB. Although the twenty-six new OTC CME WM/Reuters
currency pairs are capable of being physically deliverable, they may
also be cash settled in U.S. dollars to the OTC FX benchmark WM/Reuters
London FX Closing Spot Rate (4 p.m. London time).
The eleven new NDF FX pairs are very similar to CME's current USD/
CLP product. These cash-settled OTC products will include the following
currency pairs: USD/BRL; USD/RMB; USD/RUB; USD/COP; USD/PEN; USD/KRW;
USD/INR; USD/MYR; USD/IDR; USD/TWD; and USD/PHP. Like the current CME
USD/CLP product, the USD versus BRL, RMB, RUB, COP, PEN, KRW, INR, MYR,
IDR, TWD and PHP products are offered as NDF-style contracts
financially or cash settled in U.S. dollars with positions held in
clearing at the original trade price marked to the applicable standard
OTC NDF settlement rate option (many are central bank determined/
sanctioned rates). For example, final settlements for USD/BRL spot
transactions are concluded based on the difference between (1) The spot
exchange rate of Brazilian real per U.S. dollar ``Central Bank of
Brazil PTAX offered rate'' as reported for the valid value date for
cash settlement by Banco Central do Brasil for the formal exchange
market, and (2) the original trade price for each transaction, and (3)
the result divided by the BRL per USD spot exchange rate to convert
notional BRLs to USDs. Cash settlement of cleared only transactions
[[Page 67513]]
occurs on a net basis at the customer account level.
OTC FX transactions that are executed bilaterally through brokers,
ECNs or other FX trading platforms, when submitted to CME Clearing, are
novated for purposes of clearing and application of financial
safeguards, bookkeeping, trade processing, and final delivery or cash
settlement. These contracts will be carried in CME's OTC sequestered
account class.
CME Clearing uses the SPAN system to establish performance bond or
``margin'' requirements for FX spot, forwards and swaps. Initial
performance bond requirements are established at levels that are
consistent with observed levels of volatility in the particular
currency pairing and generally aligned with initial margin levels
applied to current CME FX futures and option contracts, where
applicable. CME Clearing collects and pays in cash between the
counterparties each day. CME Clearing will accept as collateral cash or
any other instruments currently designated as approved collateral for
posting for performance bonds. In order to calculate variation
requirements, settlement prices will be established for each contract
and for each delivery date referencing data collected from a variety of
market sources.
CME notes that it has also submitted the proposed rule changes that
are the subject of this filing to its primary regulator, the Commodity
Futures Trading Commission (``CFTC'').
CME believes the proposed rule changes are consistent with the
requirements of the Exchange Act including Section 17A of the Exchange
Act because they involve clearing of swaps and thus relate solely to
CME's swaps clearing activities pursuant to its registration as a
derivatives clearing organization under the Commodity Exchange Act
(``CEA'') and do not significantly affect any securities clearing
operations of the clearing agency or any related rights or obligations
of the clearing agency or persons using such service. CME further notes
that the policies of the CEA with respect to clearing are comparable to
a number of the policies underlying the Exchange Act, such as promoting
market transparency for over-the-counter derivatives markets, promoting
the prompt and accurate clearance of transactions and protecting
investors and the public interest. The proposed rule changes accomplish
those objectives by offering investors clearing for an expanded range
of FX OTC swap products.
B. Self-Regulatory Organization's Statement on Burden on Competition
CME does not believe that the proposed rule change will have any
impact, or impose any burden, on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
CME has not solicited, and does not intend to solicit, comments
regarding this proposed rule change. CME has not received any
unsolicited written comments from interested parties.
III. 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 may be submitted by using the
Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml), or send an email to [email protected]. Please include
File No. SR-CME-2011-12 on the subject line.
Paper comments should be sent in triplicate to Elizabeth
M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street,
NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-CME-2011-12. 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
a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal office of CME. 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-CME-2011-12 and should be
submitted on or before November 22, 2011.
IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
In its filing, CME requested that the Commission approve this
request on an accelerated basis, for good cause shown. CME has
articulated three reasons for granting this request on an accelerated
basis. One, the products covered by this filing, and CME's operations
as a derivatives clearing organization for such products, are regulated
by the CFTC under the CEA. Two, the proposed rule changes relate solely
to FX swap products and therefore relate solely to its swaps clearing
activities and do not significantly relate to CME's functions as a
clearing agency for security-based swaps. Three, not approving this
request on an accelerated basis will have a significant impact on the
swap clearing business of CME as a designated clearing organization.
Section 19(b) of the Act \3\ directs the Commission to approve a
proposed rule change of a self-regulatory organization if it finds that
such proposed rule change is consistent with the requirements of the
Act and the rules and regulations thereunder applicable to such
organization. The Commission finds that the proposed rule change is
consistent with the requirements of the Act, in particular the
requirements of Section 17A of the Act,\4\ and the rules and
regulations thereunder applicable to CME. Specifically, the Commission
finds that the proposed rule change is consistent with Section
17A(b)(3)(F) of the Act which requires, among other things, that the
rules of a clearing agency be designed to promote the prompt and
accurate clearance and settlement of derivative agreements, contracts,
and transactions because it should allow CME to enhance its services in
clearing foreign currency derivative products, thereby promoting the
prompt and accurate clearance and settlement of derivative agreements,
contracts, and transactions.\5\
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\3\ 15 U.S.C. 78s(b).
\4\ 15 U.S.C. 78q-1. In approving this proposed rule change, the
Commission has considered the proposed rule's impact on efficiency,
competition, and capital formation. 15 U.S.C. 78c(f).
\5\ 15 U.S.C. 78q-1(b)(3)(F).
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The Commission finds good cause for accelerating approval because:
(i) The proposed rule change does not
[[Page 67514]]
significantly affect any securities clearing operations of the clearing
agency (whether in existence or contemplated by its rules) or any
related rights or obligations of the clearing agency or persons using
such service; (ii) CME has indicated that not providing accelerated
approval would have a significant impact on the foreign currency
derivative products clearing business of CME as a designated clearing
organization; and (iii) the activity relating to the non-security
clearing operations of the clearing agency for which the clearing
agency is seeking approval is subject to regulation by another
regulator.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) \6\ of the
Act, that the proposed rule change (SR-CME-2011-12) is approved on an
accelerated basis.
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\6\ 15 U.S.C. 78s(b)(2).
For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\7\
Kevin M. O'Neill,
Deputy Secretary.
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\7\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2011-28213 Filed 10-31-11; 8:45 am]
BILLING CODE 8010-01-P