[Federal Register Volume 61, Number 48 (Monday, March 11, 1996)]
[Notices]
[Pages 9678-9680]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-5606]
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COMMODITY FUTURES TRADING COMMISSION
Chicago Mercantile Exchange Proposed Rule Amendments To Establish
a Globex Foreign Exchange Facility
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice of proposed rule amendments of the Chicago Mercantile
Exchange to establish a Globex Foreign Exchange Facility.
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SUMMARY: The Chicago Mercantile Exchange (``CME'' or ``Exchange'') has
submitted proposed rule amendments and other materials which would
establish a wholly-owned subsidiary of the Exchange which would
function as a market maker for certain CME foreign currency futures
contracts traded
[[Page 9679]]
through the Globex system.\1\ Acting pursuant to the authority
delegated by Commission Regulation 140.96, the Division of Trading and
Markets has determined to publish the CME proposal for public comment.
The Division believes that publication of the CME proposal is in the
public interest and will assist the Commission in considering the views
of interested persons.
\1\ The CME proposal includes newly proposed Rule 586.
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DATES: Comments must be received on or before April 10, 1996.
FOR FURTHER INFORMATION CONTACT:
Clarence Sanders, Attorney, Division of Trading and Markets, Commodity
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street
NW., Washington, DC 20581. Telephone: (202) 418-5484.
SUPPLEMENTARY INFORMATION:
I. Description of Proposed Rule Amendments
A. Purpose
By letters dated January 22, and February 1, 1996, the CME
submitted proposed rule amendments pursuant to Section 5a(a)(12)(A) of
the Commodity Exchange Act (``Act'') and Commission Regulation 1.41(b).
The proposed amendments would establish a Globex Foreign Exchange
Facility (``GFF''). Under the proposal, the GFF would function as a
market maker for certain CME foreign currency futures contracts traded
through the Globex system.\2\ The objective of the GFF would be to
augment the liquidity of certain Globex foreign currency futures
contracts. In so doing, the CME believes that the GFF would help to
ensure the presence of relatively liquid markets and narrower bid/ask
spread quotations for trading in foreign currency futures contracts
through the Globex system.
\2\ Globex is an electronic trade execution system for trading
in certain of the Exchange's futures and options contracts outside
of the CME's regular trading hours. Additionally, certain contracts
of the Marche A Terme International de France are listed for trading
through Globex.
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B. Operation
The GFF would be organized as a wholly-owned subsidiary of the CME.
The Exchange would independently capitalize the GFF, thereby providing
the GFF with separate financial resources. GFF employees who operate
Globex terminals would be subject to all applicable CME rules governing
Globex trading. The GFF would be subject to the rules and regulations
of the Exchange in the same manner as any other participant conducting
transactions on the Exchange.
Operations of the Exchange, as a self-regulatory organization, and
the GFF, as a subsidiary entity, would be separated. The GFF would have
neither direct nor indirect access to Exchange information on market
positions or market exposures of clearing firms and individuals.
The GFF would operate as a market maker during the electronic
trading hours (``ETH'') session of the Globex system. GFF trading
activities would be confined to trading solely for the account of the
GFF. GFF market making operations would be available during two 8\1/4\
hour shifts during the Globex ETH session.
At inception, the GFF would be authorized to make markets in
futures contracts for Deutsche marks, Japanese yen, Swiss francs, and
British pounds traded through Globex. After a period of time, however,
the GFF also would be authorized to make markets in futures contracts
in Australian dollars and Canadian dollars traded through Globex.
As a market maker, the GFF would (i) maintain a two-sided market in
the form of current bid and ask price quotations and (ii) satisfy bids
or offers of other market participants at the GFF's current bid and ask
prices. The GFF also would execute transactions through Globex on a
Request for Quote (``RFQ'') basis.\3\ The GFF would undertake to hedge
its Globex-originated positions by executing offsetting transactions in
the spot or forward interbank foreign currency market.
\3\ An RFQ is a Globex system alert by which a Globex user may
broadcast a message to all other users requesting a quotation.
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Market positions of the GFF would be carried on the books of a CME
clearing member firm. Under such an arrangement, the GFF would be a
customer of the carrying clearing member firm. The GFF intends to
liquidate its Globex-originated futures positions, along with any
corresponding interbank positions, during regular trading hours
(``RTH''). However, if the GFF did not liquidate all or part of its
Globex-originated futures position during RTH, then the GFF would be
required to meet performance bond margin requirements at its carrying
clearing member firm.
C. Oversight
The CME would establish risk management controls, including the
establishment of a GFF Oversight Committee and the appointment of a GFF
Risk Manager, to oversee GFF operations. Risk management controls
established by the CME would incorporate automated support systems,
including systems to track GFF audit trails and performance.
The GFF Oversight Committee would have authority to establish and
maintain trading limits, internal controls, and risk management
safeguards. The GFF Oversight Committee also would have authority to
halt trading operations of the GFF or order liquidation of GFF
positions at any time. The GFF Oversight Committee would periodically
report to the CME Board of Directors.
The GFF Risk Manager, the CME clearing member firm carrying GFF
positions, and CME Clearing House staff would review GFF trading on a
daily basis. Other CME staff would have oversight authority to review
books, records, systems, and facilities of the GFF. CME staff also
would have authority to review GFF trading activity for potential
regulatory violations or fraud.
II. Request for Comments
The Commission requests comments on any aspect of the CME's
proposed rule amendments that members of the public believe may raise
issues under the Act or Commission regulations. In particular, the
Commission requests comments regarding the impact on competitive
trading conditions; the adequacy of safeguards designed to limit the
Exchange's exposure to financial risk; the implications for financial
integrity and any consequent need for the segregation of, or
limitations on access to, information at the CME and the GFF; the need
for safeguards to address potential or actual conflicts of interest
arising out of the Exchange's operation of the GFF; the need for
restrictions on the personal trading activities of GFF employees; the
desirability of segregating GFF positions from the positions of other
customers at the clearing member firm carrying the GFF's positions; the
determination of appropriate means for assuring that a loss experienced
by the GFF would not affect other customers of the clearing member firm
carrying the GFF's positions; and whether any other conditions or
requirements should be imposed on the proposal.
Copies of the proposed rule amendments and related materials are
available for inspection at the Office of the Secretariat, Commodity
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street
NW, Washington, DC 20581. Copies also may be obtained through the
Office of the Secretariat at the above address or by telephoning (202)
418-5100. Some materials may be subject to confidential
[[Page 9680]]
treatment pursuant to 17 CFR 145.5 or 145.9.
Any person interested in submitting written data, views, or
arguments on the proposed rule amendments should send such comments to
Jean A. Webb, Secretary, Commodity Futures Trading Commission, Three
Lafayette Centre, 1155 21st Street NW, Washington, DC 20581, by the
specified date.
Issued in Washington, DC, on February 4, 1996.
Alan L. Seifert,
Deputy Director.
[FR Doc. 96-5606 Filed 3-8-96; 8:45 am]
BILLING CODE 6351-01-M