[Federal Register Volume 77, Number 120 (Thursday, June 21, 2012)]
[Notices]
[Pages 37456-37458]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-15125]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67207; File No. SR-CME-2012-21]
Self-Regulatory Organizations; Chicago Mercantile Exchange, Inc.;
Notice of Filing and Order Granting Accelerated Approval of Proposed
Rule Change To Amend CME Rule 971 Reporting Requirements for FCM
Clearing Members
June 15, 2012.
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 June 7, 2012, 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
CME proposes amendments to certain reporting requirements for
futures commission merchant (``FCM'') clearing members. The enhanced
reporting requirements are designed to further safeguard customer funds
held at the FCM level. The text of the proposed changes is as follows
with additions italicized and deletions in brackets.
* * * * *
Rule 100--Rule 970--No Change
* * * * *
CME Rule 971. SEGREGATION, SECURED AND SEQUESTERED REQUIREMENTS
A. All clearing members must comply with the requirements set forth
in CFTC Regulations 1.20 through 1.30, 1.32, and 30.7, and CME Rules
8F100 through 8F136. This includes, but is not limited to, the
following:
1. Maintaining sufficient funds at all times in segregation [or set
aside in separate or], secured 30.7 and sequestered accounts;
2. Computing, recording and reporting completely and accurately the
balances in the:
a. Statement of Segregation Requirements and Funds in Segregation;
b. Statement of Secured Amounts and Funds Held in Separate
Accounts; and
c. Statement of Sequestration Requirements and Funds Held in
Sequestered Accounts.
3. Obtaining satisfactory segregation, [separate] secured 30.7 and
sequestered account acknowledgement letters and identifying segregated,
[separate] secured 30.7 and sequestered accounts as such; and
4. Preparing complete and materially accurate daily segregation,
secured 30.7 and sequestered amount computations in a timely manner.
B. [Exchange staff may prescribe additional segregation, secured
and sequestered amount requirements.] All FCM clearing members must
submit a daily segregated, secured 30.7 and sequestered amount
statement, as applicable, through Exchange-approved electronic
transmissions by 12:00 noon on the following business day.
C. [All clearing members must provide written notice to the Audit
Department of a failure to maintain sufficient funds in segregation or
set-aside in separate or sequestered accounts. The Audit Department
must receive immediate written notification when a clearing member
knows or should have known of such failure.] All FCM clearing members
must submit a report of investments in a manner as prescribed through
Exchange-approved electronic transmissions as of the 15th of the month
(or the following business day if the 15th is a holiday or weekend) and
last business day of the month by the close of business on the
following business day. The report of investments shall be prepared and
shall identify separately for segregated, secured 30.7 and sequestered
funds held:
1. The dollar amount of funds held in cash and each permitted
investment identified in CFTC Regulation 1.25(a); and
2. The identity of each depository holding funds and the dollar
amount held at each depository.
D. All disbursements not made for the benefit of a customer from a
segregated, secured 30.7 or sequestered account which exceed 25% of the
FCM clearing members excess segregated, secured 30.7 or sequestered of
the respective origin must be pre-approved in writing by the clearing
member's Chief Executive Officer or Chief Financial Officer.
1. In determining if a disbursement exceeds the 25% level, such
disbursement must be:
a. Compared to the most recent calculation of excess segregated,
secured 30.7 and sequestered amounts; and
b. A single disbursement must be reviewed individually and in the
aggregated with all other disbursements not made for the benefit of a
customer of the respective segregated, secured 30.7 or sequestered
origin since the last calculation of excess funds.
2. Upon approval of a single disbursement or the disbursement which
in the aggregated exceeds the 25% level as defined in Rule 971.D.1.,
the FCM clearing member must provide immediate notification to the
Audit Department through Exchange-approved electronic transmissions.
Such notification shall include:
a. Confirmation that the FCM clearing member's Chief Executive
Officer or Chief Financial Officer pre-approved in writing the
disbursement(s);
b. The amount(s) and recipient(s) of such disbursement(s); and
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c. A description of the reasons for the single or multiple
transaction(s) that resulted in the disbursement(s).
E. All clearing members must provide written notice to the Audit
Department of a failure to maintain sufficient funds in segregation,
secured 30.7 or sequestered accounts. The Audit Department must receive
immediate written notification when a clearing member knows or should
have known of such failure.
F. Each statement and report filing required under this Rule must
be submitted by the Chief Executive Officer, Chief Financial Officer or
their authorized representative as approved by CME using their assigned
User Identification (``User ID''). The User ID will constitute and
become a substitute for the manual signature of the authorized signer
to the electronically submitted daily segregated, secured 30.7 and
sequestered amount statements. The User ID is a representation by the
authorized signer that, to the best of his or her knowledge, all
information contained in the statement being transmitted under the User
ID is true, correct and complete. The unauthorized use of a User ID for
electronic attestation by an unauthorized party is expressly
prohibited.
G. Exchange staff may prescribe additional segregation, secured
30.7 and sequestered amount requirements.
* * * * *
Rule 972--End--No Change
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 is registered as a derivatives clearing organization with the
Commodity Futures Trading Commission (''CFTC'') and operates a
substantial business clearing futures and swaps contracts subject to
the jurisdiction of the CFTC. CME proposes to amend CME Rule 971 to
impose additional reporting requirements for FCM clearing members that
are designed to further safeguard customer funds held at the FCM level.
The proposed rule changes are being made in connection with certain
recommendations developed by CME, the National Futures Association and
the Futures Industry Association. The changes to the text of CME Rule
971 that are the subject of this filing can be summarized as follows:
Maintenance of Excess Segregated, Secured 30.7 and
Sequestered Funds. Revised Rule 971.A.1 clarifies that FCM clearing
members must maintain excess segregated, secured 30.7 and
``sequestered'' (i.e., customer cleared swaps) funds at all times,
including on an intra-day basis.
Daily Segregated, Secured 30.7 and Sequestered Statements.
Subparts B and F of revised Rule 971 require FCM clearing members to
file daily segregated, secured 30.7 and sequestered statements, as
applicable, through WinJammer, by 12:00 noon on the following business
day. These daily statements must be electronically submitted and signed
off by the firm's Chief Executive Officer, Chief Financial Officer or
their designated representative, as approved by CME and as authorized
on the User Identification Request Form.
Semi-monthly Investment Reports. Revised Rule 971.C
requires FCM clearing members to file semi-monthly reports reflecting
how customer segregated, secured 30.7 and sequestered funds are
invested and where those funds are held. The reports of investments
will be filed electronically through WinJammer as of the 15th of the
month and last day of the month.
Disbursement Approvals. Rule 971.D requires all
disbursements made by FCM clearing members of customer segregated,
secured 30.7 or sequestered funds that are not made for the benefit of
customers of the respective customer origin and that exceed 25% of the
excess segregated, secured 30.7 or sequestered funds, as applicable, to
be pre-approved in writing by the FCM's Chief Executive Officer or
Chief Financial Officer. In determining if the 25% level has been
exceeded, all such disbursements not made for the benefit of customers
by customer origin should be aggregated and compared to the most
current daily segregated, secured 30.7 and sequestered calculations, as
applicable. In addition, CME must be immediately notified upon pre-
approval of such disbursements through WinJammer notification filings,
including a description of the nature of the disbursement(s) and
confirmation of pre-approval.
CME notes that it previously announced certain of the enhanced
reporting requirements described above when it issued Audit Information
Bulletin (``AIB'') 12-04 on April 2, 2012. The AIB was filed with the
Commission in SR-CME-2012-13.\3\
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\3\ The Commission approved SR-CME-2012-13 on April 26, 2012, as
to the new reporting requirement requiring all FCM clearing members
to file daily, segregated, secured 30.7 and ``sequestered'' (or
customer cleared swaps) statements, as applicable, on a daily basis.
Exchange Act Release No. 34-66867, 77 FR 26062 (May 2, 2012).
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CME anticipates making the changes to Rule 971.C effective on July
1, 2012. CME anticipates making the changes to Rule 971.D effective at
some point in the July 2012 time period. The other changes to Rule 971,
the substance of which were addressed by CME's previous filing of AIB
12-04, are scheduled to become effective on June 14, 2012. CME also
made a filing, CME Submission 12-178, with the CFTC with respect to the
proposed changes.
CME believes the proposed changes are consistent with the
requirements of the Act. First, CME, a derivatives clearing
organization, is implementing the proposed changes in furtherance with
applicable CFTC regulations and Commodity Exchange Act (``CEA''), which
contains a number of provisions that are comparable to the policies
underlying the Act, including, for example, promoting market
transparency for derivatives markets, promoting the prompt and accurate
clearance of transactions and protecting investors and the public
interest. Second, CME believes the proposed changes are specifically
designed to protect investors and the public interest because the
requirements help safeguard customer funds held at the FCM level.
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,
[[Page 37458]]
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-2012-21 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-2012-21. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of 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-2012-21 and should be
submitted on or before July 12, 2012.
IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
Section 19(b) of the Act \4\ 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, and the rules and regulations
thereunder applicable to CME.\5\ 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 protect investors and the public
interest because the proposed rule change should allow CME to better
monitor the financial status and risk management procedures of its
clearing members.\6\
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\4\ 15 U.S.C. 78s(b).
\5\ 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).
\6\ 15 U.S.C. 78q-1(b)(3)(F).
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In its filing, CME requested that the Commission approve this
proposed rule change on an accelerated basis for good cause shown. CME
cites as the reason for this request CME's operation as a DCO, which is
subject to regulation by the CFTC under the CEA. This rule change is
being made to enhance CME's efforts to protect investors who utilize
its clearinghouse services through its FCM clearing members.
The Commission finds good cause for approving the proposed rule
change prior to the 30th day after the date of publication of notice in
the Federal Register because the proposed rule change allows CME to
implement the additional clearing member surveillance designed
specifically to protect investors and the public interest.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (SR-CME-2012-21) is approved on an
accelerated basis.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\7\
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\7\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-15125 Filed 6-20-12; 8:45 am]
BILLING CODE 8011-01-P