Federal Register, Volume 78 Issue 96 (Friday, May 17, 2013)

[Federal Register Volume 78, Number 96 (Friday, May 17, 2013)]
[Notices]
[Pages 29163-29165]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-11760]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69564; File No. SR-CME-2013-06]

Self-Regulatory Organizations; Chicago Mercantile Exchange Inc.;
Notice of Filing and Order Granting Accelerated Approval of Proposed
Rule Change Regarding an Expansion of CME Clearing's Category 3
Collateral Limits

May 13, 2013.
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 May 3, 2013, 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 to
solicit comments on the proposed rule change from interested persons
and to approve the proposed rule change on an accelerated basis.
---------------------------------------------------------------------------

\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

CME proposes to issue the text copied below via a Clearing Advisory
Notice to announce changes relating to the maximum limits for
``Category 3'' collateral (as specified on CME's Web site) effective as
of May 10, 2013. This text is also available at CME's Web site at
http://www.cmegroup.com, at the principal office of CME, and at the
Commission's Public Reference Room. The text is:

As per the normal review of acceptable collateral and limits,
CME Clearing is making the below change regarding the clearing
member firm maximum limit for Category 3 collateral. The change is
pending all regulatory review periods.
Collateral accepted by CME Clearing is categorized as noted
below. Currently, the maximum allowable limit for utilization of
Category 3 Assets is the lesser of a) 40% of core margin
requirements and concentration requirements per origin and asset
account or b) $3 billion per Clearing Member Firm across all
settlement accounts.
Effective with the RTH cycle on Friday, May 10, 2013, the
maximum allowable limit for utilization of Category 3 Assets will be
the lesser of a) 40% of core margin requirements and concentration
requirements per origin and asset account or b) $5 billion per
Clearing Member Firm across all settlement accounts.
Category 1 assets have no requirement type limits. Category 2
assets have a maximum allowable limit of 40% of core margin
requirements and concentration requirements per Clearing Member Firm
across all settlement accounts.
Please refer to the Web site link below for details on
individual asset type limits and product class restrictions.

Category 1 Assets:
U.S. Cash
U.S. Treasuries
IEF2 Money Market Fund Program
Category 2 Assets:
U.S. Government Agencies
Select Mortgage Backed Securities
IEF5 Specialized Cash Program
Letters of Credit
Category 3 Assets:
Foreign Sovereign Debt (sub-limit of $1 billion per
clearing member firm)
Gold (sub-limit of $500 million per clearing member
firm)
IEF4 Specialized Collateral Program
Stocks
TIPS (sub-limit of $1 billion per clearing member firm)
Please call CME Clearing for availability of Foreign Cash
deposits.
Please refer to the Web site http://www.cmegroup.com/clearing/financial-and-collateral-management/ for further detail regarding
acceptable collateral, haircuts, and limits. For questions about
requirements, please call Risk Management hotline at 312-634-3888
and questions about collateral can be directed to the Financial Unit
hotline at 312-207-2594.
* * * * *

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

As a derivatives clearing organization (``DCO'') registered with
the Commodity Futures Trading Commission (``CFTC''), CME periodically
reviews the acceptable collateral and limits associated with its
clearing business. The changes announced in the Clearing Notice are
part of this normal process. The changes relate to the maximum limit
for certain ``Category 3'' collateral as specified on CME's Web site.
Currently, the maximum allowable limit for utilization of the Category
3 Assets is the lesser of (a) 40% of core margin requirements and
concentration requirements per origin and asset account or (b) $3
billion per Clearing Member Firm across all settlement accounts. The
Notice would announce that, effective on Friday, May 10, 2013, the
maximum allowable limit for utilization of Category 3 Assets will
become the lesser of (a) 40% of core margin requirements and
concentration requirements per origin and asset account or (b) $5
billion per Clearing Member Firm across all settlement accounts. The
purpose of the change is to increase the flexibility of CME clearing
members to post additional Category 3 collateral in anticipation of an
increase to the amount of initial margin posted at CME due to the
CFTC's impending June 11, 2013 clearing mandate effective date.
Although the changes could impact the makeup of the collateral used
by any particular clearing member to meet its margin requirements, the
changes would have no impact on the level of margin collected.\3\
Further, the changes will have no impact at all on the collection of
margin in relation to CME's CDS clearing offering, because the CDS
business has separate requirements that apply in particular to posting
collateral in connection with CDS activities. The Notice would not
change those separate CDS-specific requirements.
---------------------------------------------------------------------------

\3\ Historically, CME has aligned the size of its committed
liquidity facility with the amount of Category 3 assets it was
willing to accept as collateral. For example, in 2012 CME's
committed liquidity facility was $3 billion and the amount of
Category 3 collateral it accepted was also $3 billion. CME increased
its committed liquidity facility and obtained a $5 billion liquidity
facility for 2013. When CME increased its liquidity facility it did
not immediately increase its Category 3 collateral limits in tandem.
CME now plans to increase the limits on its acceptance of Category 3
collateral in advance of the Category 2 clearing mandate. Since CME
already increased its committed liquidity facility to $5 billion,
this change does not impact its overall risk profile.
---------------------------------------------------------------------------

CME notes that it has also submitted the proposed rule changes that
are the subject of this filing to its primary regulator, the CFTC, in
CME Submission 13-155.
CME believes the proposed rule change is consistent with the
requirements of the Exchange Act, including Section 17A of the Act.\4\
Specifically, CME believes the changes are consistent with Section
17A(b)(3)(F)

[[Page 29164]]

of the Act,\5\ which 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, to
assure the safeguarding of securities and funds which are in the
custody and control of the clearing agency or for which it is
responsible, and to protect investors and the public interest. As a DCO
registered with the CFTC, CME believes the proposed Advisory Notice
will facilitate posting of collateral in relation to products that are
subject to the CFTC's impending clearing mandates and that such changes
are in compliance with applicable CFTC requirements related to such
matters. In addition, although the changes could impact the makeup of
the collateral used by any particular clearing member to meet its
margin requirements for CFTC regulated products, the changes would have
no impact on the overall level of margin collected. CME believes the
Notice is consistent with the requirements of the Act because
facilitating posting of collateral in compliance with applicable CFTC
regulations promotes the prompt and accurate clearance and settlement
of derivative agreements, contracts and transactions and facilitates
the protection of investors and the public interest. Furthermore, the
proposed Advisory Notice is limited to CME's business as a DCO and
therefore does not significantly affect any securities operations of
the clearing agency or any related rights or obligations of the
clearing agency or persons using such service. For these reasons, CME
believes the proposed rule is consistent with the requirements of
Section 17A(b)(3)(F) of the Act.\6\
---------------------------------------------------------------------------

\4\ 15 U.S.C. 78q-1.
\5\ 15 U.S.C. 78q-1(b)(3)(F).
\6\ Id.
---------------------------------------------------------------------------

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

Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml) or
Send an email to [email protected]. Please include
File Number SR-CME-2013-06 on the subject line.

Paper Comments

Send paper comments 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-2013-06. 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 and on CME's
Web site at http://www.cmegroup.com/market-regulation/files/sec_19b-4_13-06.pdf.
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-2013-06
and should be submitted on or before June 7, 2013.

IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change

Section 19(b) of the Act \7\ 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,\8\ 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,\9\ which requires, among other things, 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 because it will facilitate the posting of collateral in
relation to products that are subject to the CFTC's impending clearing
mandates.
---------------------------------------------------------------------------

\7\ 15 U.S.C. 78s(b).
\8\ 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).
\9\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

In its filing, CME requested that the Commission approve this
proposed rule change on an accelerated basis for good cause shown. CME
notes that the products affected by this filing, and the CME's
operations as a DCO clearing such products, are regulated by the CFTC
under the Commodity Exchange Act and are therefore limited to CME's
business as a DCO and do not significantly affect any securities
clearing operations of CME or any related rights or obligations of the
clearing agency or persons using such service. CME believes the
Advisory Notice simply increases the flexibility afforded to CME in
executing its responsibilities as a DCO and does not have any negative
impact on its overall risk profile. Additionally, CME has indicated
that not approving this request on an accelerated basis would have a
significant impact on the clearing business of CME as a DCO.
The Commission finds that there is good cause, pursuant to Section
19(b)(2) of the Act,\10\ for approving the proposed rule change prior
to the thirtieth day after the date of publication of notice in the
Federal Register because: (i) The proposed rule change does not

[[Page 29165]]

significantly affect any of CME's securities clearing operations or any
related rights or obligations of CME or persons using such service;
(ii) the products affected by this filing, and the CME's operations as
a DCO clearing such products, are regulated by the CFTC under the
Commodity Exchange Act; and (iii) CME has indicated that not providing
accelerated approval would have a significant impact on its swaps
clearing business as a designated clearing organization.
---------------------------------------------------------------------------

\10\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

V. Conclusion

It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\11\ that the proposed rule change (SR-CME-2013-06) be, and hereby
is, approved on an accelerated basis.
---------------------------------------------------------------------------

\11\ Id.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
---------------------------------------------------------------------------

\12\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-11760 Filed 5-16-13; 8:45 am]
BILLING CODE 8011-01-P