[Federal Register Volume 76, Number 213 (Thursday, November 3, 2011)]
[Notices]
[Pages 68242-68243]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-28462]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65655; File No. SR-CME-2011-07]
Self-Regulatory Organizations; Chicago Mercantile Exchange, Inc.;
Order Approving Proposed Rule Change To Accept Additional Credit
Default Index Swaps for Clearing
October 28, 2011.
I. Introduction
On September 9, 2011, the Chicago Mercantile Exchange Inc.
(``CME'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change SR-CME-2011-07 pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\
and Rule 19b-4 thereunder.\2\ The proposed rule change was published
for comment in the Federal Register on September 28, 2011.\3\ The
Commission received no comment letters regarding the proposal. For the
reasons discussed below, the Commission is granting approval of the
proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 34-65378 (September 22,
2011), 76 FR 60110 (September 28, 2011). In its filing with the
Commission, CME included statements concerning the purpose of and
basis for the proposed rule change. The text of these statements are
incorporated into the discussion of the proposed rule change in
Section II below.
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II. Description
The rule change will permit CME to expand its ability to clear
credit default swap (``CDS'') contracts referencing broad-based
securities indices by permitting CME to clear CDS contracts referencing
the Markit CDX North American High Yield Index Series 11, 12, 13, 14,
15, 16 and 17, in each case solely with respect to contracts
referencing the applicable index with an original tenor of five years.
As of the date that it filed this rule change, CME offered for clearing
CDS contracts referencing the Markit CDX North American Investment
Grade Index Series 10, 11, 12, 13, 14, 15, 16 and 17.\4\
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\4\ CME subsequently filed a rule change pursuant to Section
19(b)(3)(A) of the Act and Rule 19b-4(f)(4)(i) thereunder to allow
it to clear CDS contracts referencing the Markit CDX North American
Investment Grade Index Series 9. See Securities Exchange Act Release
No. 34-65489 (October 5, 2011), 76 FR 63339 (October 12, 2011). For
CDS contracts referencing the Markit CDX North American Investment
Grade Index Series 9 and 10, CME's rule permit the clearing of
contracts referencing the applicable index with an original tenor of
five, seven or ten years. For CDS contracts referencing the Markit
CDX North American Investment Grade Index Series 11, 12, 13, 14, 15,
16 and 17, CME's rule permit the clearing of contracts referencing
the applicable index with an original tenor of three, five, seven or
ten years.
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III. Discussion
Section 19(b)(2)(B) of the Act 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.\5\ In particular, Section 17A(b)(3)(F) of the Act \6\
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, to the extent applicable, derivative
agreements, contracts and transactions, and to assure the safeguarding
of securities and funds which are in the custody or control of such
clearing agency or for which it is responsible.
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\5\ 15 U.S.C. 78s(b)(2)(B).
\6\ 15 U.S.C. 78q-1(b)(3)(F).
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The proposed rule change would make additional CDS contracts
eligible for central clearing at CME and thus would facilitate the
prompt and accurate clearance and settlement of derivative agreements,
contracts and transactions. CME's rules and procedures for clearing CDS
contracts referencing broad-based securities indices, particularly
those pertaining to its risk management operations and financial
safeguards systems, are also designed to limit the risk of financial
loss to CME and its members as a result of these additional CDS
contracts. Thus, the proposed rule change to permit CME to clear and
settle CDS contracts referencing the Markit CDX North American High
Yield Index Series 11, 12, 13, 14, 15, 16 and 17 is consistent with the
requirement that CME assure the safeguarding of securities and funds
which are in its custody or control or for which it is responsible.\7\
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\7\ Moreover, the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 was passed by Congress and signed into law by
the President to, among other things, ensure that, wherever possible
and appropriate, derivatives contracts formerly traded exclusively
in the over-the-counter market be cleared. See, e.g., Report of the
Senate Committee on Banking, Housing, and Urban Affairs regarding
The Restoring American Financial Stability Act of 2010, S. Rep. No.
111-176 at 34 (stating that ``[s]ome parts of the OTC market may not
be suitable for clearing and exchange trading due to individual
business needs of certain users. Those users should retain the
ability to engage in customized, uncleared contracts while bringing
in as much of the OTC market under the centrally cleared and
exchange-traded framework as possible.''). The Commission believes
that expanding CME's ability to clear CDS contracts referencing
broad-based securities indices will facilitate bringing additional
security-based swaps into clearing, particularly with respect to the
individual components of these indices.
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IV. Conclusion
On the basis of the foregoing, the Commission finds that the
proposal is consistent with the requirements of the Act and in
particular with the requirements of Section 17A of the Act \8\ and the
rules and regulations thereunder.
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\8\ 15 U.S.C. 78q-1.
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\9\ that the proposed rule change (File No. SR-CME-2011-07) be, and
hereby is, approved.\10\
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\9\ 15 U.S.C. 78s(b)(2).
\10\ 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.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-28462 Filed 11-2-11; 8:45 am]
BILLING CODE 8011-01-P