[Federal Register Volume 79, Number 236 (Tuesday, December 9, 2014)]
[Notices]
[Pages 73122-73124]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-28770]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73729; File No. SR-CME-2014-13]
Self-Regulatory Organizations; Chicago Mercantile Exchange Inc.;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Relating to the Application of Excess Defaulting Clearing Member Assets
in Crossover Default Scenarios and the Harmonization of Defaulted Base
Clearing Member Collateral Definitions
December 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 November 26, 2014, Chicago Mercantile Exchange
Inc. (``CME'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as 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) 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 240.19b4(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 are limited to its
business as a derivatives clearing organization. More specifically, the
proposed rule changes would make amendments to CME Rules relating to
the application of excess defaulting clearing member assets in
crossover default scenarios and the harmonization of Defaulted Base
Clearing Member Collateral definitions.
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 new rules to specify the
allocation of excess collateral of a defaulted clearing member to
losses relating to products in other financial safeguards at CME pro
rata based on the remaining loss in each of such product classes.
Additionally, CME is proposing to amend CME Rule 802.A to harmonize the
member collateral definition across the default rules. CME notes that
it has also made a corresponding filing with the CFTC, in Submission
No. 14-097R, regarding the proposed changes.
The proposed changes to CME Rules 802.D, 8G802.D and 8H802.D would
specify the allocation of excess collateral of a defaulted clearing
member for a particular financial safeguard package to losses relating
to product classes subject to other financial safeguards at CME. CME
employs three financial safeguard packages (i.e. waterfalls) for each
of the following product classes: interest rate swap products
(``IRS''); credit default swap products (``CDS''); and Base products
(which are all products other than IRS and CDS). The default rules for
each respective waterfall contain the ability, once the loss of the
clearing member for that waterfall is entirely satisfied, to use excess
house assets of the clearing member towards satisfying uncovered losses
of such clearing member for products in other waterfalls. For example,
if a member was clearing IRS and Base products and excess Base
collateral remained after completely satisfying all losses for Base
Products, the rules provide that such excess may be used towards any
uncovered losses of that clearing member for IRS products.
CME rules are currently silent on the allocation mechanism of such
excess funds to unresolved losses in other product classes where losses
remain in both of the other product classes. The proposed new CME Rules
802.D.1, 8G802.D.1, and 8H802.D.1 would specify that any such excess is
allocated to the other safeguard packages pro rata based on the
remaining loss in each of such product classes.
Additionally, CME is proposing to amend CME Rule 802.A.2 to
harmonize
[[Page 73123]]
the clearing member house collateral definition across the default
rules.
CME believes the proposed rule changes are consistent with the
requirements of the Exchange Act including Section 17A.\5\ The proposed
changes for the allocation of excess funds comport with CFTC Regulation
39.16(c)(2)(iv) by adding clarifying language to specify the sequence
in which excess house funds of the defaulting clearing member for a
product class will be used to satisfy uncovered losses for other
product classes. In addition, changes are proposed that would harmonize
the defaulted clearing member definition and clarify the defaulted
member's assets held by the clearing house that may be used to satisfy
losses due to the clearing member's default. Because these changes
clarify CME's existing default rules and procedures, they 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 CME or for which it is responsible,
and, in general, to protect investors and the public interest in a way
that is 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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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 changes
simply specify the allocation of excess collateral of a defaulted
clearing member to losses relating to products in other financial
safeguards at CME pro rata based on the remaining loss in each of such
product classes and, additionally, harmonize the member collateral
definition across the default rules.
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
CME Inc. has filed the proposed rule change pursuant to Section
19(b)(3)(A) \7\ of the Act and paragraph (f)(4)(ii) of Rule 19b-4 \8\
thereunder.
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\7\ 15 U.S.C. 78s(b)(3)(A).
\8\ 17 CFR 240.19b-4(f)(4)(ii).
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CME asserts that this proposal constitutes 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 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, which
renders the proposed change effective upon filing. CME believes that
the proposal does not significantly affect any securities clearing
operations of CME because CME recently filed a proposed rule change
that clarified that CME has decided not to clear security-based swaps,
except in a very limited set of circumstances. \9\ The rule filing
reflecting CME's decision not to clear security-based swaps removed any
ambiguity concerning CME's ability or intent to perform the functions
of a clearing agency with respect to security-based swaps. Therefore,
this proposal will not have an effect on any securities clearing
operations of CME.
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\9\ See Securities Exchange Act Release No. 34-73615 (Nov. 17,
2014), 79 FR 69545 (Nov. 21, 2014) (SR-CME-2014-49). The only
exception is with regards to Restructuring European Single Name CDS
Contracts created following the occurrence of a Restructuring Credit
Event in respect of an iTraxx Component Transaction. The clearing of
Restructuring European Single Name CDS Contracts will be a necessary
byproduct after such time that CME begins clearing iTraxx Europe
index CDS.
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At any time within 60 days of the filing of the proposed 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 Securities Exchange Act of 1934.
If the Commission takes such action, the Commission shall institute
proceedings under Section 19(b)(2)(B) \10\ of the Act to determine
whether the proposed rule change should be approved or disapproved.
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\10\ 15 U.S.C. 78s(b)(2)(B).
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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-2014-13 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-2014-13. 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, 100F 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-2014-13 and
should be submitted on or before December 30, 2014.
[[Page 73124]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-28770 Filed 12-8-14; 8:45 am]
BILLING CODE 8011-01-P