[Federal Register Volume 79, Number 68 (Wednesday, April 9, 2014)]
[Notices]
[Pages 19683-19685]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-07883]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71853; File No. SR-CME-2014-11]
Self-Regulatory Organizations; Chicago Mercantile Exchange Inc.;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Regarding Clarifications to Its Chapter 7 Delivery Rules
April 3, 2014.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Exchange Act'' or ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on March 27, 2014, 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. CME filed the
proposal pursuant to Section 19(b)(3)(A)(i) of the Act \3\ and Rule
19b-4(f)(1) \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)(i).
\4\ 17 CFR 240.19b-4(f)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
CME is filing the proposed rule change that is limited to its
business as a derivatives clearing organization. More specifically, the
proposed rule change would clarify certain aspects of CME's Chapter 7
rules with respect to deliveries of futures products.
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
[[Page 19684]]
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 DCO with the Commodity Futures Trading
Commission (``CFTC'') and offers clearing services for many different
futures and swaps products. The proposed rule change that is the
subject of this filing is limited to its business as a DCO clearing
futures contracts.
Per existing CME Rule 702, CME guarantees financial performance
(i.e., replacement cost) for all physically deliverable futures
products. In assessing the current rulebook, CME noted that certain
provisions in current Chapter 7 should be clarified to more clearly
state CME's obligations in deliveries and delivery failures as the
existing rule contains some language that may be seen as inconsistent
with the overriding impact of CME Rule 702. As a result, CME is now
proposing clarifying amendments to more clearly state CME's obligations
for deliveries and delivery failures as specified below.
The proposed amendments to CME Rules 730-732 and 742.A delete the
operational mechanics of the currency delivery rules in light of the
guaranty of financial performance per Rule 702 for deliveries.
The proposed amendments to CME Rule 743.B clarify that the clearing
member causing a currency delivery failure is liable to CME for any
financial performance paid by CME to the contra-clearing member. The
proposed amendments to CME Rule 743.A delete the reference to charging
a clearing member overdraft fees for late or inaccurate deliveries.
Finally, CME is proposing changes to CME Rule 702 to harmonize and
more clearly state that CME is responsible for financial performance to
the clearing member that did not cause or contribute to the delivery
failure by strengthening the operative language (the current rule
states that CME ``shall seek to ensure financial performance . . .'').
``Financial performance'' is defined as payment of the commercially
reasonable costs of the affected clearing member for replacing the
failed delivery and includes any fines, penalties and fees incurred in
replacing the delivery and does not include physical performance or
legal fees. The changes further include a deadline for affected
clearing members to seek a claim for financial performance and
codification of the requirement to submit supporting documentation.
The rule change that is described in this filing is limited to
CME's business as a DCO clearing products under the exclusive
jurisdiction of the CFTC and does not materially impact CME's security-
based swap clearing business in any way. The above listed change is a
clarification to existing rules and does not result in changes to the
operational processes or the nature or level of the risks posed to CME
or clearing members. The change will be effective on filing and CME
plans to operationalize it on March 27, 2014. CME notes that it has
also certified the proposed rule change that is the subject of this
filing to its primary regulator, the CFTC, in a separate filing, CME
Submission No. 14-077.
CME believes the proposed rule change is consistent with the
requirements of the Exchange Act including Section 17A.\5\ The proposed
change is intended to clarify existing CME obligations for deliveries
in a manner consistent with CFTC Regulation 39.14(g), which requires
DCOs to state their obligations with respect to deliveries, including
obligations to make or accept deliveries. The proposed change simply
clarifies existing practices by revising current rules to more clearly
state that, in the event of a delivery failure, CME's obligations will
be for financial performance to the clearing member whose actions or
omissions did not cause or contribute with respect to the delivery
failure (the proposed change also clearly defines the term ``financial
performance''). These clarifications to CME's existing delivery process
rules will provide greater clarity to the marketplace regarding CME's
obligations in the delivery process and as such are designed to 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 change is limited in its effect to
futures products currently offered under CME's authority to act as a
DCO. These products are under the exclusive jurisdiction of the CFTC.
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 the prompt and accurate
clearance of transactions and protecting investors and the public
interest.
Because the proposed change is limited to making clarifications to
more clearly state CME's obligations in the delivery process under
already existing CME rules, the change is therefore consistent with the
requirements of Section 17A of the Exchange Act \7\ and is properly
filed under Section 19(b)(3)(A) \8\ and Rule 19b-4(f)(1) \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)(1).
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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 change
clarifies existing CME practices and simply states that in the event of
a delivery failure, CME's obligations will be for financial performance
to the clearing member whose actions or omissions did not cause or
contribute with respect to the delivery failure and defines financial
performance to be payment of the commercially reasonable costs of the
affected clearing member for replacing the failed delivery and includes
any fines, penalties and fees incurred in replacing the delivery and
does not include physical performance or legal fees.
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)(1) \11\ thereunder, as
CME has designated that this rule change constitutes a stated policy,
practice, or interpretation with respect to the meaning,
administration, or enforcement of an existing rule, which renders the
proposed rule change
[[Page 19685]]
effective upon filing. 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)(1).
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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
Send an email to [email protected]. Please include
File No. SR-CME-2014-11 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-2014-11. 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/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-2014-11 and
should be submitted on or before April 30, 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. 2014-07883 Filed 4-8-14; 8:45 am]
BILLING CODE 8011-01-P