[Federal Register Volume 79, Number 50 (Friday, March 14, 2014)]
[Notices]
[Pages 14556-14558]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-05593]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71670; File No. SR-CME-2014-06]
Self-Regulatory Organizations; Chicago Mercantile Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of Proposed Rules Changes
Regarding Implementation of Rules To Address Third Party Swap Execution
Platforms
March 10, 2014.
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 February 28, 2014, Chicago Mercantile Exchange Inc. (``CME'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change described in Items I, II and III below, which
Items have been prepared primarily by CME. CME filed the proposal
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(4)(ii) \4\ thereunder so that the proposal was effective upon
filing with the Commission. 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.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(4)(ii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
CME is filing proposed rules changes that address issues relating
to third party swap execution platforms. The proposed rules generally
clarify the time at which the rules of the CME Clearing House
(``Clearing House'') apply, confirm the authority of the Clearing House
to conduct risk management in conformance with its obligations under
applicable regulations, and ensure that the Clearing House has
sufficient flexibility to perform default management as required by
applicable regulations. In addition, the proposed rules ensure that
voids and price adjustments cannot occur after clearing without
Clearing House consent, stipulate that Execution Platforms connected to
the Clearing House comply with regulatory obligations, and require
position transfers to comply with the Clearing House rules. Further,
the proposed rule clarifies that it does not apply to security-based
swaps. The proposed rules are limited to CME's business as a
derivatives clearing organization clearing swaps under the jurisdiction
of the Commodity Futures Trading Commission (``CFTC'').
II. Self-Regulatory Organization's 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 IV 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
CME is registered as a derivatives clearing organization with the
Commodity Futures Trading Commission and currently offers clearing
services for many different futures and swaps products. The purpose of
these proposed rule changes is to address issues relating to third
party swap execution platforms. Although these changes will be
effective on filing, CME plans to operationalize the proposed changes
on February 28, 2014.
Proposed Rule 815 is designed to address the risks posed to the
Clearing House by third party execution platforms for swaps. The
proposed rules: Clarify the time at which the rules of the Clearing
House apply; confirm the authority of the Clearing House to conduct
risk management in conformance with its obligations under CFTC
Regulation 39.13; and ensure that the Clearing House has sufficient
flexibility to perform default management as required under CFTC
Regulations 39.16 and 39.27(b)(4). Proposed Rule 815 also explains that
all third party execution platforms (``Execution Platforms'') that
submit, or have submitted on their behalf, swap trades for clearing to
the Clearing House, are bound by the Clearing House Rules. CME notes
that the Clearing House also separately negotiated provisions in its
commercial agreements with third party execution platforms for swaps
which stipulate that the Clearing House rules apply once a trade has
been submitted for clearing. In addition, the Execution Platforms all
contractually agreed to be bound by the Clearing House rules applicable
to the clearing services provided to them by the Clearing House.
Proposed Rule 815 specifically confirms that the Clearing House
rules apply once a trade has been submitted for clearing and that the
Clearing House has the sole authority, where circumstances permit, to:
Accept or reject trades, block or cancel trades, block or terminate
connections with Execution Platforms, determine whether it will accept
trade transaction counterparty risk and determine whether contracts are
economically equivalent. In addition, the proposed rules ensure that
voids and price adjustments cannot occur after clearing without
Clearing House consent, stipulate that Execution Platforms connected to
the Clearing House comply with regulatory obligations, and require
position transfers to comply with the Clearing House rules. The
proposed rules are intended to avoid the possibility of unacceptable
ambiguities regarding the clearing and risk management of swap
positions and prevent the actions of third parties from limiting or
interfering with the ability of the Clearing House to perform prudent
risk management and comply with its regulatory obligations. The
proposed
[[Page 14557]]
rule does not apply to security-based swaps.
CFTC Regulations require DCOs like the Clearing House to implement
an enforceable legal framework to address the default of a clearing
member, including but not limited to, the unimpeded ability to
liquidate collateral and close out or transfer positions in a timely
manner. The Clearing House believes that Execution Platforms may
provide the necessary liquidity pools in the future which may assist it
in closing out positions in a timely manner. As such, the Clearing
House determined that it was important to implement a binding rule
providing it with the ability to access the swap liquidity available at
Execution Platforms. As noted above, Execution Platforms agreed to be
bound by the Clearing House rules in their commercial arrangements with
the Clearing House which, in conjunction with these rules, enhances the
legal framework under which the Clearing House manages default risks.
The changes that are described in this filing are limited to CME's
business as a derivatives clearing organization clearing products under
the exclusive jurisdiction of the Commodity Futures Trading Commission
(``CFTC'') and do not materially impact CME's security-based swap
clearing business in any way. CME notes that it has already submitted
the proposed rule changes that are the subject of this filing to its
primary regulator, the CFTC, in CME Submission 14-060.
CME believes the proposed rule changes are consistent with the
requirements of the Exchange Act including Section 17A of the Exchange
Act.\5\ The proposed rule changes are generally designed to: Address
risks posed by third party execution platforms for swaps by clarifying
the time at which the rules of the Clearing House apply; confirm the
authority of the Clearing House to conduct risk management in
conformance with its regulatory obligations; and ensure that the
Clearing House has sufficient flexibility to perform default
management. In addition, the proposed rules ensure that voids and price
adjustments cannot occur after clearing without Clearing House consent,
stipulate that Execution Platforms connected to the Clearing House
comply with regulatory obligations, and require position transfers to
comply with the Clearing House rules. Further, the proposed rule
clarifies that it does not apply to security-based swaps. These
purposes promote the prompt and accurate clearance and settlement of
securities transactions and, to the extent applicable, derivatives
agreements, contracts, and transactions, to assure the safeguarding of
securities and funds which are in the custody or control of the
clearing agency or for which it is responsible, and, in general, to
protect investors and the public interest consistent with Section
17A(b)(3)(F) of the Exchange Act.\6\
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\5\ 15 U.S.C. 78q-1.
\6\ 15 U.S.C. 78q-1(b)(3)(F).
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Furthermore, the proposed changes are limited in their effect to
swaps products offered under CME's authority to act as a derivatives
clearing organization. These products are under the exclusive
jurisdiction of the CFTC. As such, the proposed CME changes are limited
to CME's activities as a derivatives clearing organization clearing
swaps that are not security-based swaps; CME notes that the policies of
the CFTC with respect to administering the Commodity Exchange Act 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.
Because the proposed changes are limited in their effect to swaps
products offered under CME's authority to act as a derivatives clearing
organization, the proposed changes are properly classified as effecting
a change in an existing service of CME that:
(a) Primarily affects the clearing operations of CME with respect
to products that are not securities, including futures that are not
security futures, and swaps that are not security-based swaps or mixed
swaps; and
(b) does not significantly affect any securities clearing
operations of CME or any rights or obligations of CME with respect to
securities clearing or persons using such securities-clearing service.
As such, the changes are therefore consistent with the requirements of
Section 17A of the Exchange Act \7\ and are properly filed under
Section 19(b)(3)(A) \8\ and Rule 19b-4(f)(4)(ii) \9\ thereunder.
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\7\ 15 U.S.C. 78q-1.
\8\ 15 U.S.C. 78s(b)(3)(A).
\9\ 17 CFR 240.19b-4(f)(4)(ii).
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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. The proposed rule changes
address potential risks posed to the Clearing House by third party
execution platforms. The proposed rules clarify the time at which the
rules of the Clearing House apply; confirm the authority of the
Clearing House to conduct risk management in conformance with its
regulatory obligations; and ensure that the Clearing House has
sufficient flexibility to perform default management. In addition, the
proposed rules ensure that voids and price adjustments cannot occur
after clearing without Clearing House consent, stipulate that Execution
Platforms connected to the Clearing House comply with regulatory
obligations, and require position transfers to comply with the Clearing
House rules. Further, the proposed rule clarifies that it does not
apply to security-based swaps. These purposes do not act as a restraint
on competition but rather are prudent measures in line with the
Clearing House's regulatory risk management obligations.
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. 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) \10\ of the Act and Rule 19b-4(f)(4)(ii) \11\ 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.
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\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 17 CFR 240.19b-4(f)(4)(ii).
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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
[[Page 14558]]
Send an email to [email protected]. Please include File
No. SR-CME-2014-06 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-CME-2014-06. 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 or 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/rule-filings.html.
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-2014-06
and should be submitted on or before April 4, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-05593 Filed 3-13-14; 8:45 am]
BILLING CODE 8011-01-P