[Federal Register Volume 76, Number 245 (Wednesday, December 21, 2011)]
[Notices]
[Pages 79258-79260]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-32585]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65959; File No. SR-CME-2011-17]
Self-Regulatory Organizations; Chicago Mercantile Exchange, Inc.;
Notice of Filing and Order Granting Accelerated Approval of Proposed
Rule Change To Revise Rules Relating to Its Cleared Only OTC FX Swap
Offering
December 15, 2011.
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 December 2, 2011, the 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. The Commission is publishing this
Notice and Order to solicit comments on the proposed rule change from
interested persons and to approve the proposed rule change on an
accelerated basis.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of Terms of Substance of
the Proposed Rule Change
CME proposes to amend rules related to existing cleared-only
foreign exchange (``FX'') currency derivatives products. The proposed
rule changes make certain clarifying revisions and other amendments to
rules that were the subject of a recent filing, SR-CME-2011-12.\3\
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\3\ Commission staff notes that SR-CME-2011-12 was previously
approved pursuant to delegated authority on October 26, 2011. See
Securities Exchange Act Release No. 65637, 76 FR 67512 (Nov. 1,
2011).
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The text of the proposed rule change is available at the CME's Web
site at http://www.cmegroup.com, at the principal office of CME, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of 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 III 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 Purpose of, and
Statutory Basis for, the Proposed Rule Change
In late September, 2011, CME submitted proposed rule changes in
filing SR-CME-2011-12 to establish rules to expand its cleared-only,
foreign currency (``FX'') swaps offering to support the introduction of
(1) twenty-six new foreign FX currency derivatives for over-the-counter
(``OTC'') cash settlement; and (2) eleven new FX non-deliverable
forward transaction currency pairs for traditional, OTC cash
settlement. CME initially planned to make the rules that are the
subject of this filing operational on January 3, 2012. CME has adopted
a phased roll-out approach and intends to launch the products that are
covered by this filing on December 19, 2011. The proposed changes
associated with this filing have been identified to prepare for this
roll-out. More specifically, the proposed rule changes that are the
subject of this filing include: Changes to CME Rule 5.C. (Position
Limit and Reportable Level table); changes to CME Chapter 300 (CME WM/
Reuters OTC Spot, Forward and Swap Contracts); changes to CME Chapter
277H (Cleared OTC U.S. Dollar/Peruvian Nuevo Sol (USD/PEN) Spot,
Forwards and Swaps); changes to CME Chapter 257H (Cleared OTC U.S.
Dollar/Brazilian Real (USD/BRL) Spot, Forwards and Swaps); CME Chapter
260H (Cleared OTC U.S. Dollar/Russian Ruble (USD/RUB) Spot, Forwards
and Swaps); CME Chapter 270H (Cleared OTC U.S. Dollar/Chinese Renminbi
(USD/RMB) Spot, Forwards and Swaps); and CME Chapter 271H (Cleared OTC
U.S. Dollar/Korean Won Sol (USD/KRW) Spot, Forwards and Swaps). The
proposed rule text is available on CME's Web site.
The first set of proposed changes deal with CFTC position limit,
accountability and reportable levels. Individual entries in CME's
current Appendix to Chapter 300 provide either Position Accountability
(PA) or Position Limits (PL) or a combination of both (e.g., PA
[[Page 79259]]
with spot month PL) depending generally on the liquidity in the
underlying OTC instruments and coordinating with existing and similar
FX futures and options on futures contracts. Highly liquid underlying
FX pair activity enable Position Accountability trigger levels as
opposed to finite limits, and less liquid underlying FX pair activity
require the more restrictive Position Limits. Since FX futures, options
on FX futures, cleared OTC FX spot, forwards and swaps; and OTC FX
options on spot and forwards, are essentially extensions of the same
market, CME rules will aggregate positions for an account holder across
all of these product lines per FX pair. Notional level equivalents for
existing CME FX pair futures contracts for Position Accountability and/
or Position Limits are carried over to CME's Cleared OTC FX rules.
Twenty-two of the twenty-six new cleared CME WMR OTC FX products
being launched on Monday, December 19, 2011, have underlying FX pair
futures and/or options on futures contracts for these same FX pairs
that will be listed for cleared OTC transactions (i.e., AUD/USD, USD/
CHF, USD/CAD, NZD/USD, USD/NOK, USD/SEK, EUR/USD, USD/JPY, GBP/USD,
USD/MXN, USD/PLN, USD/ZAR, AUD/JPY, EUR/AUD, CAD/JPY, EUR/GBP, EUR/JPY,
EUR/CHF, USD/CZK, USD/HUF, USD/TRY and USD/ILS). As noted above, CME
considers FX futures, options on FX futures, cleared OTC FX spot,
forwards and swaps; and OTC FX options on spot and forwards, as
essentially extensions of the same market, and CME rules will aggregate
positions for an account holder across all of these product lines per
FX pair. In instances where there are existing underlying futures and
options on futures contracts for the same FX pair, CME is basing the
new OTC contract Position Accountability and Position Limits rules on
these underlying, existing futures and options on futures. That is, for
purposes of aggregation, positions in the new cleared OTC products will
be rolled up in equivalent amounts of currency specified in the
corresponding FX pair futures and options on futures Position
Accountability and/or Position Limits rules.
CME Chapter 300 contains new rules governing the twenty-six new CME
WMR OTC CSFs that are scheduled to be launched on Monday, December 19,
2011. CME proposes to add a second sentence to the preexisting second
paragraph of CME Rule 300.02.A. This additional sentence in the rule
plus an analogous single-asterisked footnote added to the Chapter 300
Appendix would denote the additional step at final cash settlement,
where for several asterisked FX pairs, the final calculated ``minimum
fluctuation currency amount'' is converted into the ``Unit of Trading
and Clearing Currency'' by dividing by the Final Settlement Price. This
action would minimize the number of different currency accounts that
customers will need to open in order to participate in CME's cleared
OTC FX offering. For example, for 14 of the 26 new CME WMR OTC CSFs
launching on December 19, 2011, the final settlement amount will be
converted into USDs from CHF, NOK, SEK, DKK, MXN, SGD, PLN, ZAR, CZK,
HUF, TRY, ILS, THB and HKD, eliminating the need for customers to
maintain accounts in these 14 currencies. A new additional second
paragraph for CME Rule 300.02.A. would denote that, in some cases, the
Final Settlement Prices for a given FX pair would be calculated using
the appropriate WM/Reuters Closing Spot Rates for component currency
pairs. For example, the AUD/JPY Final Settlement Price will be
calculated by multiplying the two WM/Reuters 4 pm London time Closing
Spot Rates for AUD/USD and USD/JPY; therefore, the AUD/JPY Final
Settlement Price is derived from those two FX pairs' Final Settlement
Prices. Double asterisks and an explanatory footnote in the Appendix
table to Chapter 300 clearly identify those FX pairs that would be
calculated in this way. Lastly, for CME Rule 300.02.A., a fourth
paragraph is proposed to define the movement of the final payment
amount between the CME Clearing House and buyers and sellers, when the
calculation of that final payment amount is positive or negative. This
language had been adopted previously by CME for many of the cleared OTC
FX NDF products and is being included also for the cleared CME WM/
Reuters OTC FX products and those cleared OTC FX NDF offerings where
CME has an underlying futures contract for the same FX pair.
CME is also proposing amendments to CME Rule 277H.02.A. (Day of
Cash Settlement) to make the rule provision for number of decimals
(six) of the Final Settlement Price calculation to align with the
decimal notation for the minimum price increment (six).
CME is also proposing a change to CME Chapters 257H, 260H, 270H and
271H. These changes would add language to the cash settlement
provisions in the rules governing four different cleared OTC FX NDF
products to mirror procedures and documentation for other cleared OTC
FX NDF products. The proposed rule changes are designed to define
movement of the final payment amount at termination between CME
Clearing and the buyers and sellers in the transaction. The proposed
changes impact the OTC USD/RUB, USD/BRL, USD/CNY and USD/KRW non-
deliverable forwards products.
CME is also making a filing, CME Submission 11-463, with its
primary regulator, the Commodity Futures Trading Commission, with
respect to the proposed rule changes.
CME believes the proposed changes are consistent with the
requirements of the Exchange Act including Section 17A of the Exchange
Act because they involve clearing of swaps and thus relate solely to
CME's swaps clearing activities pursuant to its registration as a
derivatives clearing organization under the Commodity Exchange Act
(``CEA'') and do not significantly affect any securities clearing
operations of the clearing agency or any related rights or obligations
of the clearing agency or persons using such service. CME further notes
that the policies of CEA with respect to clearing 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. The proposed rule changes accomplish
those objectives by offering investors clearing for a range of FX OTC
swap products.
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.
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. 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 may be submitted by using the
Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml), or send an email to [email protected].
[[Page 79260]]
Please include File No. SR-CME-2011-17 on the subject line.
Paper comments should be sent in triplicate to Elizabeth
M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street
NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-CME-2011-17. 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
a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal office of CME. 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-2011-17 and should be
submitted on or before January 11, 2012.
IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
In its filing, CME requested that the Commission approve this
request on an accelerated basis for good cause shown. CME has
articulated three reasons for granting this request on an accelerated
basis. One, the products covered by this filing, and CME's operations
as a derivatives clearing organization for such products, are regulated
by the CFTC under the CEA. Two, the proposed rule changes relate solely
to FX swap clearing and therefore relate solely to its swaps clearing
activities and do not significantly relate to CME's functions as a
clearing agency for security-based swaps. Three, not approving this
request on an accelerated basis will have a significant impact on the
swap clearing business of CME as a designated clearing organization.
Section 19(b) of the Act \4\ directs the Commission to approve a
proposed rule change of a self-regulatory organization if it finds that
such proposed rule change is consistent with the requirements of the
Act and the rules and regulations thereunder applicable to such
organization. The Commission finds that the proposed rule change is
consistent with the requirements of the Act, in particular the
requirements of Section 17A of the Act,\5\ and the rules and
regulations thereunder applicable to CME. Specifically, the Commission
finds that the proposed rule change is consistent with Section
17A(b)(3)(F) of the Act which requires, among other things, that the
rules of a clearing agency be designed to promote the prompt and
accurate clearance and settlement of derivative agreements, contracts,
and transactions because it should allow CME to enhance its services in
clearing FX swaps, thereby promoting the prompt and accurate clearance
and settlement of derivative agreements, contracts, and
transactions.\6\
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\4\ 15 U.S.C. 78s(b).
\5\ 15 U.S.C. 78q-1. In approving this proposed rule change, the
Commission has considered the proposed rule's impact on efficiency,
competition, and capital formation. 15 U.S.C. 78c(f).
\6\ 15 U.S.C. 78q-1(b)(3)(F).
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The Commission finds good cause, pursuant to Section 19(b)(2) of
the Act,\7\ for approving the proposed rule change prior to the 30th
day after the date of publication of notice in the Federal Register
because: (i) The proposed rule change does not significantly affect any
securities clearing operations of the clearing agency (whether in
existence or contemplated by its rules) or any related rights or
obligations of the clearing agency or persons using such service; (ii)
CME has indicated that not providing accelerated approval would have a
significant impact on the swap clearing business of CME as a designated
clearing organization; and (iii) the activity relating to the non-
security clearing operations of the clearing agency for which the
clearing agency is seeking approval is subject to regulation by another
regulator.
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\7\ 15 U.S.C. 78s(b)(2).
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V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (SR-CME-2011-17) is approved on an
accelerated basis.
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\8\ 17 CFR 200.30-3(a)(12).
For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\8\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-32585 Filed 12-20-11; 8:45 am]
BILLING CODE 8011-01-P