[Federal Register Volume 68, Number 94 (Thursday, May 15, 2003)]
[Notices]
[Pages 26364-26366]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-12148]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47812; File No. SR-CME-2003-01]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of a Proposed Rule Change by the Chicago 
Mercantile Exchange To Adopt, on a Permanent Basis, a Standard Under 
Which a Market Maker Can Qualify for Exclusion From CME's Margin Rules

May 7, 2003.
    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 May 7, 2003, the Chicago Mercantile Exchange (``CME'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by CME. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested

[[Page 26365]]

persons and to grant accelerated approval of the proposed rule change.
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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 the Terms of Substance 
of the Proposed Rule Amendments

    CME proposes to adopt, on a permanent basis, CME Rule 930.B.2.b.(3) 
(herein referred to as ``Market Maker Exclusion''). On November 8, 
2002, the Commission approved the Market Maker Exclusion on a pilot 
basis, ending May 7, 2003 (the ``Pilot'').\3\ CME believes that 
permanent approval of the Market Maker Exclusion is consistent with the 
jointly adopted margin rules of the Commission and the Commodity 
Futures Trading Commission (``CFTC'') (collectively, ``Commissions'').
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    \3\ See Securities Exchange Act Release No. 46792 (November 8, 
2002), 67 FR 69273 (November 15, 2002).
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    Below is the text of the proposed rule change that CME proposes to 
adopt on a permanent basis.
* * * * *
930.B. Performance Bond Rates
    1. Non-Security Futures (No Change).
    2. Security Futures
    a.-b. (1) and (2) (No change).
    (3) The Market Maker:
    (i) Is assigned to a group of Security Futures Contracts listed on 
the Exchange that is either unlimited in nature (``Unlimited 
Assignment''); or, is assigned to no more that 20% of the Security 
Futures Contracts listed on the Exchange (``Limited Assignment'');
    (ii) At least 75% of the Market Maker's total trading activity in 
Exchange Security Futures Contracts is in its assigned Security Futures 
Contracts, measured on a quarterly basis;
    (iii) During at least 50% of the trading day the Market Maker has 
bids or offers in the market that are at or near the best market, 
except in unusual market conditions as determined by the Exchange (such 
as a fast market in either a Security Futures Contract or a security 
underlying a Security Futures Contract), with respect to at least 25% 
(in the case of an Unlimited Assignment) or at least one (in the case 
of a Limited Assignment) of its assigned Security Futures Contracts; 
and
    (iv) The requirements in (ii) and (iii) are satisfied on (a) at 
least 90% of the trading days in each calendar quarter by Market Makers 
who have undertaken an Unlimited Assignment; or (b) at least 80% of the 
trading days in each calendar quarter by Market Makers who have 
undertaken a Limited Assignment; or (c) on at least 80% of the trading 
days in each calendar quarter by Market Makers who have undertaken 
either an Unlimited Assignment or Limited Assignment but where the 
Exchange is listing four (4) or fewer Security Futures Contracts.
    For purposes of clauses (1) and (2) above, beginning on the 181st 
calendar day after the commencement of trading of Security Futures 
Contracts on the Exchange, a ``meaningful proportion of the total 
trading volume of Security Futures Contracts on the Exchange'' shall 
mean a minimum of 20% of such trading volume.
    Any Market Maker that fails to comply with the applicable Rules of 
the Exchange, CFTC Regulations 41.41 through 41.49 and SEC Regulations 
242.400 through 242.406 shall be subject to disciplinary action in 
accordance with Chapter 4. Appropriate sanctions in the case of any 
such failure shall include, without limitation, a revocation of such 
Market Maker's registration as a Security Futures Dealer.
    c.-d. (No Change).
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the proposed Rule Change

    In its filing with the Commission, the CME included statements 
concerning the purpose of, 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. The 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

1. Purpose
    The CME proposes to adopt, on a permanent basis, the Market Maker 
Exclusion, which sets forth the standards under which a CME member may 
be excluded from the Exchange's margin requirements as a ``market 
maker.'' The CME believes that the proposed rule change is consistent 
with Commission Rule 400(c)(2)(v) under the Act \4\ and CFTC Rule 
41.42(c)(2)(v),\5\ which establish standards by which members of 
national securities exchanges may qualify as Security Futures Dealers 
and therefore be excluded from customer margin requirements for 
security futures.
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    \4\ 17 CFR 242.400(c)(2)(v).
    \5\ 17 CFR 41.42(c)(2)(v).
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    The CME notes that the Market Maker Exclusion has not actually been 
deployed in practice at the Exchange to date. In addition, the CME 
notes that the Commission has received no comment letters on this 
matter during the pilot period. The CME proposes no changes to the 
Market Maker Exclusion and, therefore, CME proposes to adopt the 
proposed rule change on a permanent basis.
2. Statutory Basis
    The CME believes that the proposed rule change is consistent with 
section 6(b)(5) of the Act \6\ in that it promotes competition and is 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, and to protect 
investors and the public interest. The CME believes that the proposed 
rule change is designed to accomplish these goals by permitting members 
to trade security futures, as permitted under the Commission's Rule.
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    \6\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The CME does not believe that the proposed rule change will have an 
impact on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Comments on the proposed rule change have not been solicited and 
none have been received.

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. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 
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 inspection and copying in the 
Commission's Public Reference

[[Page 26366]]

Room. Copies of such filing will also be available for inspection and 
copying at the principal office of the CME. All submissions should 
refer to File No. SR-CME-2003-01 and should be submitted by June 5, 
2003.

IV. Commission Findings and Order Granting Accelerated Approval of a 
Proposed Rule Change

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\7\ In 
particular, the Commission believes that the proposed rule change is 
consistent with the requirements of section 6(b)(5) of the Act,\8\ 
which requires, among other things, that the rules of the Exchange be 
designed to promote just and equitable principles of trade and, in 
general, to protect investors and the public interest.\9\ In addition, 
the Commission believes that the proposed rule change is consistent 
with section 7(c)(2)(B) of the Act,\10\ which provides, among other 
things, that the margin requirements for security futures must preserve 
the financial integrity of markets trading security futures, prevent 
systemic risk, be consistent with the margin requirements for 
comparable exchange-traded options, and provide that the margin levels 
for security futures may be no lower than the lowest level of margin, 
exclusive of premium, required for any comparable exchange-traded 
option.
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    \7\ 15 U.S.C. 78s(b)(2).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ In approving the proposed rule, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \10\ 15 U.S.C. 78g(c)(2)(B).
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    The Commission believes that the CME's standards for market makers 
under Rule 930.B.2.b.(3) are consistent with the Act, and Rule 
400(c)(2)(v) thereunder.\11\ Specifically, Rule 400(c)(2)(v) provides 
that the Commissions' joint margin rules do not apply to a member of a 
national securities exchange that is registered with such exchange as a 
``Security Futures Dealer'' pursuant to exchange rules that must meet 
several criteria, including a requirement that a Security Futures 
Dealer be required to ``to hold itself out as being willing to buy and 
sell security futures for its own account on a regular and continuous 
basis.'' The Commission believes that the affirmative obligations 
required by the CME pursuant to Rule 930.B.2.b.(3) satisfy this 
requirement.
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    \11\ 17 CFR 240.400(c)(2)(v).
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    The CME has requested that the Commission approve the proposed rule 
change prior to the thirtieth day after publication of notice of the 
filing in the Federal Register. The Commission finds good cause for 
approving the proposed rule change prior to the thirtieth day after the 
date of publication of notice of filing thereof in the Federal 
Register. The Commission believes that accelerated approval of the 
proposed rule change should enable CME members to trade security 
futures as market makers under the Market Maker Exclusion without undue 
delay. The Commission notes that it approved the Market Maker Exclusion 
as a temporary pilot to give members of the public an opportunity to 
comment on the substance of the Market Maker Exclusion. The Commission 
received no comments on the Pilot. Accordingly, the Commission finds 
good cause, consistent with section 19(b)(2) of the Act,\12\ to approve 
the proposed rule change prior to the thirtieth day after publication 
of the notice of filing.
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    \12\ 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,\13\ that the proposed rule change (File No. SR-CME-2003-01) be 
approved, on a permanent basis, on an accelerated basis.
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    \13\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-12148 Filed 5-14-03; 8:45 am]
BILLING CODE 8010-01-P