[Federal Register Volume 79, Number 127 (Wednesday, July 2, 2014)]
[Notices]
[Pages 37784-37786]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-15473]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72478; File No. SR-CME-2014-25]
Self-Regulatory Organizations; Chicago Mercantile Exchange Inc.;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Regarding Collateral Acceptance Practices for Products in the Base
Guaranty Fund
June 26, 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 June 23, 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) 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).
\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 proposing to announce via advisory notice a certain change
to its collateral acceptance practices. More specifically, CME is
proposing to issue an advisory to clearing member firms announcing a
change to the acceptable collateral types for base guaranty fund
products. The text of the proposed rule change is below. Italicized
text indicates additions; bracketed text indicates deletions.
CME Group Advisory Notice #14-194
TO: Clearing Member Firms
FROM: CME Clearing
SUBJECT: Exchange Traded Fund (ETF) and Stock Programs
CME Clearing is expanding its existing collateral program to include
additional Exchange Traded Funds (ETFs) that may be used as performance
bond collateral for Base Guaranty Fund products effective June 23rd,
2014. Currently, CME Clearing accepts a select number of ETFs through
its Stock Program. The existing haircut of 30% will be applied to ETFs.
Please see CME's Financial and Collateral Management page for the
updated acceptance criteria for ETFs and stocks. On the 5th business
day of every month, a new list of acceptable ETFs and stocks will be
posted to CME's Financial and Collateral Management page.
Both ETFs and stocks are part of category 3 assets. Therefore, ETFs and
stocks in combination with other category 3 assets will be capped at
the lesser of 40% of core requirement per currency or $5 billion per
clearing member firm. Please see the list of category 3 assets below.
ETFs and stocks combined are capped at $1 billion per clearing member
firm.
In accordance with CME Rule 930.C, a clearing member cannot accept an
accountholder security that has been ``issued, sponsored or otherwise
guaranteed by the accountholder.'' In addition, any ETF that is
sponsored by the clearing member or its parent or affiliate company may
not be pledged for the clearing member's house performance bond
requirement. For any questions related to the ETF and Stock Programs,
please contact the Risk Management department at 312-648-3888 or the
Financial Management group at 312-207-2594.
Category 3 Assets
IEF 2 (Money Market Funds)
IEF 4 (Corporate Bonds)
Gold
ETFs and Stocks
Foreign Sovereign Debt
The list of proposed ETFs that may be used as performance bond
collateral for Base Guaranty Fund products effective June 23rd, 2014 is
as follows:
TICKER NAME
SPY US SPDR S&P 500 ETF TRUST
IWM US ISHARES RUSSELL 2000 ETF
QQQ US POWERSHARES QQQ TRUST SERIES
XLU US UTILITIES SELECT SECTOR SPDR
IYR US ISHARES US REAL ESTATE ETF
XLI US INDUSTRIAL SELECT SECT SPDR
XLE US ENERGY SELECT SECTOR SPDR
XLV US HEALTH CARE SELECT SECTOR
XLK US TECHNOLOGY SELECT SECT SPDR
XLP US CONSUMER STAPLES SPDR
XLY US CONSUMER DISCRETIONARY SELT
DIA US SPDR DJIA TRUST
XLB US MATERIALS SELECT SECTOR SPDR
XOP US SPDR S&P OIL & GAS EXP & PR
IVV US ISHARES CORE S&P 500 ETF
VNQ US VANGUARD REIT ETF
VTI US VANGUARD US TOTAL STOCK MKT
IBB US ISHARES NASDAQ BIOTECHNOLOGY
LQD US ISHARES IBOXX INVESTMENT GRA
BND US VANGUARD TOTAL BOND MARKET
AGG US ISHARES CORE U.S. AGGREGATE
VOO US VANGUARD S&P 500 ETF
REM US ISHARES MORTGAGE REAL ESTATE
BSV US VANGUARD SHORT-TERM BOND ETF
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 (''CFTC'') and operates a
substantial business clearing futures and swaps contracts subject to
the jurisdiction of the CFTC. CME is proposing to make a certain change
to its collateral acceptance practices through the issuance of an
advisory notice to its clearing members. More specifically, CME is
expanding its existing collateral program to include
[[Page 37785]]
additional Exchange Traded Funds (``ETFs'') that may be used as
performance bond collateral for CME's Base Guaranty Fund products. The
proposed change would not impact CME's collateral acceptance practices
relating to products in its CDS Guaranty Fund. CME also notes that
although the proposed change would expand the eligible performance bond
collateral for products in the Base Guaranty Fund, the proposed change
would have no impact on the level of margin collected but rather would
simply impact the makeup of the collateral used by a clearing member to
meet its margin requirements.
Currently, CME accepts a select number of ETFs as collateral in
connection with the products associated with certain non-CDS guaranty
funds. ETFs accepted by CME as collateral are chosen through historical
analysis of the ETF market and stock market. ETFs accepted as
collateral conform to CME's credit risk criteria and are monitored by
CME daily for price changes and are subject to periodic eligibility
review. The existing haircut of 30% for currently accepted ETFs would
be applied to the newly-added ETFs under the proposed change. Both ETFs
and stocks are part of CME's ``Category 3'' assets. Therefore, ETFs and
stocks in combination with other category 3 assets would be capped at
the lesser of 40% of core requirement per currency or $5 billion per
clearing member firm. ETFs and stocks combined are capped at $1 billion
per clearing member firm. An updated table showing CME Base Guaranty
Fund performance bond limits is included below.
Updated Performance Bond Acceptable Collateral Categories and Limits
----------------------------------------------------------------------------------------------------------------
Category 1 Category 2 * Category 3 **
----------------------------------------------------------------------------------------------------------------
Category 2 & 3 Capped at $7bn Per Firm
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Cash:
U.S. Treasuries U.S. Government Agencies Strips IEF2 [dagger] (Money Market Mutual
Funds)
IEF5 (Interest Bearing Cash) TIPS (capped at $1bn per firm) Gold (capped at $500mm per firm)
Letters of Credit *
*Capped at 40% of core Select MBS ETFs and Stocks (capped at $1bn per
requirement per currency * Capped at 40% of core requirement firm)
requirement per firm per currency requirement per firm IEF4 (corporate bonds) Foreign
Sovereign Debt (capped at $1bn per
firm)
** Capped at 40% of core requirement
per currency requirement per firm
or $5 billion per firm, the lesser
of the two
[dagger] Not included in the 40%
requirement
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The advisory also clarifies that, in accordance with CME Rule
930.C, a CME clearing member cannot accept an accountholder security
that has been ``issued, sponsored or otherwise guaranteed by the
accountholder.'' In addition, the advisory would clarify that any ETF
that is sponsored by the clearing member or its parent or affiliate
company may not be pledged for the clearing member's house performance
bond requirement.
The proposed change in this filing is limited to products
associated with CME's Base Guaranty Fund and therefore does not impact
products associated with CME's CDS guaranty fund. CME accepts a
narrower range of collateral for CDS clearing and does not currently
accept letters of credit, stocks or corporate bonds as acceptable
collateral for CDS; the proposed rule change in this filing would not
impact these current practices. The proposed rule change would become
effective immediately.
CME believes the proposed rule change is consistent with the
requirements of the Exchange Act including Section 17A of the Exchange
Act.\5\ The proposed change would amend CME's collateral acceptance
practices to permit the use of additional ETFs that may be used as
performance bond collateral for CME's Base Guaranty Fund products.
Although the proposed change would expand the eligible performance bond
collateral for Base Guaranty Fund products, the proposed change would
have no impact on the level of margin collected but rather would simply
impact the makeup of the collateral used by a clearing member to meet
its margin requirements. Expanded collateral choices for market
participants will 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 to products associated
with CME's Base Guaranty Fund, which means the proposed change is
limited in its effect to products that are under the exclusive
jurisdiction of the CFTC. As such, the proposed change is limited to
CME's activities as a DCO 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 change is limited in its effect to products
associated with CME's Base Guaranty Fund and therefore offered under
CME's authority to act as a DCO, the proposed change is 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, swaps that are not security-based swaps or mixed
swaps; and forwards that are not security forwards; 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 change is therefore consistent with the requirements
of
[[Page 37786]]
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 change would
simply expand the eligible performance bond collateral for CME's Base
Guaranty Fund. These expanded collateral choices will benefit market
participants by offering greater flexibility.
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 upon filing 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
Send an email to [email protected]. Please include
File No. SR-CME-2014-25 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-2014-25. 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-2014-25 and
should be submitted on or before July 23, 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. 2014-15473 Filed 7-1-14; 8:45 am]
BILLING CODE 8011-01-P