[Federal Register Volume 79, Number 131 (Wednesday, July 9, 2014)]
[Notices]
[Pages 39033-39035]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-16045]
[[Page 39033]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72530; File No. SR-CME-2014-24]
Self-Regulatory Organizations; Chicago Mercantile Exchange Inc.;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to
Settlement Procedures Regarding Five CME Cleared OTC FX Spot, Forward
and Swap Contracts
July 3, 2014.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``Exchange 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, II and
III below, which Items have been primarily prepared 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 changes 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 filing proposed rule changes that are limited to its
business as a derivatives clearing organization (``DCO''). More
specifically, the proposed rule changes contain amendments to certain
aspects of CME's settlement procedures for five of CME's Cleared Over-
the-Counter Foreign Exchange Spot, Forward and Swap Contracts.
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 DCO with the Commodity Futures Trading
Commission (``CFTC'') and offers clearing services for many different
futures and swaps products. The proposed rule changes that are the
subject of this filing are limited to CME's business as a DCO offering
clearing services for CFTC-regulated swaps products. CME currently
offers clearing services for cleared-only OTC FX contracts on a number
of different currency pairs. These CME Cleared OTC FX Spot, Forward and
Swap Contracts are non-deliverable foreign currency forward contracts
and, as such, are considered to be ``swaps'' under applicable
regulatory definitions.\5\ CME proposes to make amendments to five of
these contracts. There is currently no open interest in these
contracts.
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\5\ See Commodity Futures Trading Commission and Securities and
Exchange Commission Joint Final Rule Defining ``Swap,'' ``Security-
Based Swap,'' and ``Security-Based Swap Agreement;'' Mixed Swaps;
Security-Based Swap Agreement Recordkeeping; Final Rule, 77 FR
48207, 48255 (August 13, 2012).
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The amendments would impact the following CME rules:
CME Rule 277H.02.A.--Day of Cash Settlement and
277H.02.B.--[Reserved] and the addition of an Interpretation of Chapter
277H of Cleared OTC U.S. Dollar/Peruvian Nuevo Sol (USD/PEN) Spot,
Forwards and Swaps Contracts (Rulebook Chapter: 277H; Code: USDPEN);
CME Rule 273H.02.A.--Day of Cash Settlement and
273H.02.B.--[Reserved] and the addition of an Interpretation of Chapter
273H of Cleared OTC U.S. Dollar/Columbian Peso (USD/COP) Spot, Forwards
and Swaps Contracts (Rulebook Chapter: 273H; Code: USDCOP);
CME Rule 274H.02.B.--Procedures if No Cash Settlement
Price is Available of Cleared OTC U.S. Dollar/Chilean Peso (USD/CLP)
Spot, Forwards and Swaps Contracts (Rulebook Chapter: 274H; Code:
USDCLP);
CME Rule 257H.02.A.--Day of Cash Settlement of Cleared OTC
U.S. Dollar/Brazilian Real (USD/BRL) Spot, Forwards and Swaps Contracts
(Rulebook Chapter: 257H; Code: USDBRL); and
CME Rule 283H.02.A.--Day of Cash Settlement of Cleared OTC
U.S. Dollar/Philippines Peso (USD/PHP) Spot, Forwards and Swaps
Contracts (Rulebook Chapter: 283H; Code: USDPHP).
In summary, the amendments would modify the rules above to align
them with procedures currently used in the over-the-counter (OTC) non-
deliverable forward (NDF) market in order to reduce basis risk for
market participants.
The rules governing the cleared only USD/PEN and USD/COP contracts
are being conformed to internationally accepted practices. The
amendments would include new procedures to settle these contracts to
the EMTA COP/EMTA PEN Indicative Survey Rate, as applicable, when the
``Tasa Representativa del Mercado or TRM'' Colombian peso per U.S.
dollar rate or the ``PEN INTERBANK AVE (PEN05)'' Peruvian Nuevo Sol per
U.S. dollar rate, as applicable, are unavailable. The new procedures
are designed to follow current cash market practices by instituting
certain back-up survey processes that would be available in the event
the primary survey rates are unavailable. The back-up process is
administered by EMTA, a prominent trade group for the emerging markets
trading and investment community, and involves the consolidation of
survey results gathered through polling of a set of participating
banks.
The amendments to the USD/BRL and USD/PPH contracts are also
designed to conform the rules to internationally accepted practices.
For example, the amendments specify that, for each applicable cleared
contract for the valid value date for cash settlement in one or two
business days, as applicable, for the appropriate currency. Each
contract would be liquidated under the rules by cash settlement at a
price equal to the daily final settlement price.\6\
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\6\ Based on Staff's conversation with CME personnel on June 30,
2014, CME provided the following clarification for this paragraph:
The amendments to the USD/BRL and USD/PHP contracts are also
designed to conform the rules to internationally accepted practices.
For example, Rule 257H.02.A is being amended to read as follows:
``Each Cleared OTC Contract, for a valid value date for cash
settlement in two Business Days, shall be liquidated by cash
settlement at a price equal to the daily Final Settlement Price for
that day.'' The previous formulation of Rule 257H.02.A specified one
business day. In contrast, the language of Rule 283H.02.A is being
amended to specify: ``Each Cleared OTC Contract, for the valid value
date for cash settlement in one Business Day, shall be liquidated by
cash settlement at a price equal to the daily Final Settlement Price
(FSP) for that day.'' The previous formulation of Rule 283H.02.A
specified two business days.
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CME is amending the CME Rulebook regarding the USD/CLP contract to
specify that in the event that the ``CLP D[Oacute]LAR OBS (CLP10)''
Chilean pesos per U.S. dollar rate is not published on a valid date for
cash settlement, and the EMTA CLP Indicative Survey does not provide a
rate, then Force Majeure shall be in effect.
[[Page 39034]]
The changes that are described in this filing are limited to CME's
business as a DCO clearing products under the exclusive jurisdiction of
the CFTC and do not materially impact CME's security-based swap
clearing business in any way. The changes will be effective on filing.
CME notes that it has also certified the proposed rule changes that are
the subject of this filing to its primary regulator, the CFTC, in a
separate filing, CME Submission No. 14-175. The text of the CME
proposed rule amendments is attached as Exhibit 5 to CME's filing with
the Commission, with additions underlined and deletions in brackets.
CME believes the proposed rule changes are consistent with the
requirements of the Exchange Act including Section 17A of the Exchange
Act.\7\ CME is proposing the amendments to align its current rules
related to five OTC FX swap contracts more closely with procedures
currently used in the OTC NDF market for the purpose of reducing basis
risk for market participants. These amendments which are designed to
reduce basis risk will benefit market participants clearing OTC FX
swaps contracts with CME and, as such, should be seen to be 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.\8\
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\7\ 15 U.S.C. 78q-1.
\8\ 15 U.S.C. 78q-1(b)(3)(F).
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Furthermore, the proposed changes are limited in their effect to
products offered under CME's authority to act as a DCO. The products
that are the subject of this filing are under the exclusive
jurisdiction of the CFTC. As such, the proposed CME changes are limited
to CME's activities as a DCO clearing swaps that are not security-based
swaps, futures that are not security futures and forwards that are not
security forwards. 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 OTC FX
products offered under CME's authority to act as a DCO, 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, 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 changes are therefore consistent with the requirements of
Section 17A of the Exchange Act \9\ and are properly filed under
Section 19(b)(3)(A) \10\ and Rule 19b-4(f)(4)(ii) \11\ thereunder.
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\9\ 15 U.S.C. 78q-1.
\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 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 amendments
are designed to align CME's current rules related to five OTC FX swap
contracts more closely with procedures currently used in the OTC NDF
market for the purpose of reducing basis risk for market participants
and are operational processing changes. These operational processing
changes will help reduce market participants' basis risk and should not
be seen to impact 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. 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) \12\ of the Act and Rule 19b-4(f)(4)(ii) \13\
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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\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 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-2014-24 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-2014-24. 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
[[Page 39035]]
Number SR-CME-2014-24 and should be submitted on or before July 30,
2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2014-16045 Filed 7-8-14; 8:45 am]
BILLING CODE 8011-01-P