[Federal Register Volume 76, Number 169 (Wednesday, August 31, 2011)]
[Notices]
[Pages 54275-54277]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-22223]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65200; File No. SR-CME-2011-02]


Self-Regulatory Organizations; Chicago Mercantile Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Reflect Differences in Proprietary Trading Exchange Fees Based on 
Ownership of CME Group Shares

August 25, 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 August 12, 2011, 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. CME filed the proposed rule change 
pursuant to Section 19(b)(3)(A) \3\ of the Act and Rule 19b-4(f)(4)(ii) 
\4\ thereunder.
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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 Terms of Substance of 
the Proposed Rule Change

    The text of the proposed rule change is below. Italicized text 
indicates additions; bracketed text indicates deletions.
* * * * *
Rule 106. Transactions, Security Transactions, and Authorizations To 
Transfer or Sell
    106.I. Affiliate Member Firm.
    An ``affiliate'' shall be defined to include a firm [clearing 
member or Rule 106.J equity member or a firm] that either: owns, 
directly or indirectly, 100% of a clearing member with shares or Rule 
106.J. equity member firm or has 100% ownership, direct or indirect, in 
common with a firm that owns, directly or indirectly, 100% of a 
clearing member with shares or Rule 106.J. equity member firm. Clearing 
members with shares are those clearing members that maintain CME Group 
Class A shares in accordance with CME Rule 106.J. Equity Member Firm 
requirements in order to receive equity member rates.
    A membership may be owned by a clearing member with shares, Rule 
106.J. equity member or affiliate firm under this Rule. The membership 
may be held in the name of the firm or principals or employees of an 
affiliate and be transferred among its principals and employees 
provided that: (1) The transfer is approved by Exchange staff; (2) the 
transferee is approved for membership pursuant to the rules of the 
Exchange; and (3) the transfer is for the legitimate business purposes 
of the firm. The affiliate firm shall have the right, at any time, to 
withdraw the authority of the transferee to trade on the membership 
owned by the clearing member with shares, Rule 106.J. equity member or 
affiliate firm, but must withdraw such authority upon termination of 
his employment or other association with the firm. Notice of the 
withdrawal of the authority of the transferee to trade on the 
membership owned by a clearing member with shares, Rule 106.J. equity 
member or affiliate firm must be given to his qualifying clearing 
member, and such clearing member must subsequently notify the Exchange 
pursuant to Rule 511.A. The clearing member with shares, Rule 106.J. 
equity member or affiliate firm shall designate on a form provided by 
the Exchange a representative who shall be authorized to deal with the 
Exchange with respect to the membership held under this Section.
    The proceeds of the sale of a membership which is used to qualify a 
Rule 106.I. affiliate member firm shall be subject to Rule 110 claims 
against both the owner of the membership and the Rule 106.I. affiliate 
member firm.
    A Rule 106.I. membership may not be transferred pursuant to any 
other provision of Rule 106. The membership may not be assigned for 
membership purposes under Rules 106.H., 106.J., 106.R., 106.S. or 902.
    Rule 106.I. firm benefits apply to the firm trading activity of any 
affiliate as defined in this Rule. All such positions

[[Page 54276]]

of the firm and its affiliates must be carried by a clearing member(s) 
in accounts separate from positions of subsidiaries, customers and 
other entities.
    A Rule 106.I. affiliate member firm may not hold itself out to the 
public as a clearing member.
    Exchange staff may grant exemptions from the requirements of this 
Rule.
    * * *
    Chapter 9. Clearing Members.
    900.A. CME Clearing Members.
    CME Clearing Members shall have all applicable rights, 
responsibilities and privileges attendant thereto, subject to the 
provisions of these rules and shall be qualified to clear transactions 
for all CME products and all Expanded-Access Products listed for 
trading by CBOT after July 12, 2007.
    CME Clearing Members receive fees in conjunction with CME Rule 
106.H. Trading Member Firms. CME Clearing Members with shares are those 
clearing members that maintain CME Group Class A shares in accordance 
with CME Rule 106.J. Equity Member Firm requirements in order to 
receive equity member rates.
    900.B. Financial Instrument Clearing Members.
    A Financial Instrument Clearing Member (``FICM'') shall have the 
right to clear, for its own account, trades in certain CME and CBOT 
interest rate products executed in connection with a cash versus 
futures trading strategy.
    The FICM must be guaranteed by a CME and/or CBOT Clearing Member 
that is entitled to clear all of the products cleared by the FICM. The 
guarantor must be the clearing member for the FICM's transactions in 
U.S. Treasury Securities and report to the Clearing House, at 
appropriate intervals, the FICM's open positions in U.S. Treasury 
Securities. The guarantor shall assume complete responsibility for all 
of the FICM's obligations to the Exchange and Clearing House arising 
from its operations as a FICM. In the event of a default by the FICM to 
the Clearing House in respect of any futures or options on futures, the 
FICM shall be suspended by the Exchange and the open positions of the 
FICM shall be transferred to, owned by, and become the direct 
responsibility of the guarantor. In the event of a default by the FICM 
or a related entity to the guarantor clearing firm, the Exchange will, 
at the request of the guarantor clearing firm, and upon due 
verification of the facts, facilitate the suspension of the FICM, in 
which case the open positions of the FICM shall be transferred to, 
owned by, and become the direct responsibility of the guarantor.
    The FICM shall be subject to applicable CME and CBOT Rules, 
including those contained in CME and CBOT Rules Chapter 8 and Chapter 
9, and including without limitation, CME Rule 802 (Protection of the 
Clearing House, including the primary responsibility for the Clearing 
House assessment obligation therein). The FICM shall comply with all of 
the requirements and obligations of a clearing member pursuant to CME 
Rule 901 (General Requirements and Obligations) with the exception of 
the parent guarantee requirement pursuant to CME 901(L). The FICM must 
satisfy the following requirements:
    (i) Adjusted Net Capital of $500,000;
    (ii) Initial minimum guaranty fund deposit of $50,000 to be 
increased to reflect transaction volume, open interest and risk;
    (iii) The assignment of one Full or two Associate Memberships [and 
4,000 CME Group shares] for the privilege of clearing CBOT interest 
rate products and two CME, two IMM, two IOM, and one GEM membership 
[and 6000 CME Group shares] for the privilege of clearing CME interest 
rate products. [The CME Group share requirement for FICMs eligible to 
clear both CBOT and CME interest rate products is 7,750 shares.] 
Memberships [and shares] may be independently assigned.
    (iv) FICMs receive fees in conjunction with CME and/or CBOT Rule 
106.H. Trading Member Firms as applicable. FICMs that maintain CME 
Group Class A shares in accordance with CME Rule 106.J. Equity Member 
Firm requirements are eligible to receive equity member rates. The 
applicant shall be engaged in or demonstrate immediate capacity to 
engage in U.S. Treasury/interest rate futures spread trades and in 
order to maintain the status of a FICM, shall actively execute both 
sides of U.S. Treasury/interest rate futures spread trades.
    A FICM applicant shall execute and place on file with the Exchange 
the following documents:
    (v) An application for the FICM clearing membership;
    (vi) Globex System access documentation;
    (vii) Settlement bank account documents to permit the Clearing 
House to collect and disperse monies directly to the FICM;
    (viii) An acknowledgement from the guarantor that it agrees to 
guarantee the performance and financial obligations of the FICM to the 
Clearing House for certain identified interest rate products;
    (ix) Authorization to the Clearing House to verify, at its 
discretion, the transactions and open positions of the FICM in U.S. 
Treasury Securities;
    (x) Authorization to the Clearing House to deliver the FICM's trade 
register and recap ledger to the FICM's Clearing Member guarantor;
    (xi) A Clearing Member and FICM authorization pursuant to which the 
Clearing Member/guarantor will be authorized to submit complete and 
accurate transaction and position information respecting the U.S. 
Treasury Securities of the FICM to the Clearing House; and
    (xii) Any additional documents or information requested by the 
Clearing House for risk management purposes.
    Exchange staff may grant exceptions to the requirements of Rule 
900.[C]B for good cause if it is determined that such exceptions will 
not jeopardize the financial integrity of the Exchange.

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 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 Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    The financial-safeguards package that has historically applied to 
CME's futures market has used the value of memberships and shares to 
comprise a significant portion of the assets available to CME Clearing 
in a clearing member default situation. Recent enhancements to CME's 
financial-safeguards package significantly increased the amount of the 
guaranty-fund deposits available to CME Clearing. These changes also 
included amendments to make CME Group shares a much smaller portion of 
the total assets available to CME Clearing in a default scenario. Most 
recently, on May 13, 2011, CME determined to eliminate the CME Group 
share assignment requirement entirely from the requirements that apply 
to a CME clearing membership.
    Notwithstanding these recent changes to the clearing membership 
requirements, the proprietary trading exchange fee requirements that 
apply to the futures trading activities of a CME

[[Page 54277]]

clearing member that maintains CME Group shares are different than 
those that apply to a CME clearing member that does not. The purpose of 
the proposed rule change in this filing is to make clarifying revisions 
to the CME rulebook to more accurately reflect these fee differentials. 
The rule changes affecting the CME rulebook are included in File No. 
SR-CME-2011-02.
    CME notes that it submitted the rule changes that are the subject 
of this filing to its primary regulator, the Commodity Futures Trading 
Commission (``CFTC''), in a separate filing.\5\ This filing also 
included corresponding changes to the rulebook of its affiliated 
exchanges, The Board of Trade of the City of Chicago, Inc. (``CBOT'') 
and New York Mercantile Exchange, Inc. (``NYMEX'').
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    \5\ CME submitted its filing to the CFTC pursuant to CFTC 
Regulation 40.6 on July 28, 2011 with a proposed effective date of 
August 12, 2011 relating to the following CME Group rules: CME and 
CBOT Rule 106.I. (Affiliate Member Firm), CME Rules 900.A. (CME 
Clearing Members) and 900.B. (Financial Instrument Clearing Member), 
CBOT Rules 900 (Categories of Clearing Members) and 901 (General 
Requirements and Obligations), and NYMEX Rule 900.A. (NYMEX Clearing 
Members).
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    The text of the CME rule proposed amendments is in Section I of 
this notice, with additions underlined and deletions in brackets. The 
proposed effective date for these rule amendments is August 12, 2011 
(i.e., ten business days after the date of CME's submission to the 
CFTC).\6\
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    \6\ The Commission notes that the proposed rule change became 
effective upon filing under Section 19(b)(3)(A) of the Act. CME's 
statement indicates that the proposed rule change, which became 
effective on August 12, 2011, became operative that same day.
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    The proposed CME rule amendments do not significantly affect the 
securities clearing operations of CME or any related rights or 
obligations of CME clearing members. The proposed rule changes are 
intended to clarify the application of certain proprietary trading 
exchange fees to a CME clearing member that maintains CME shares and to 
those that do not. These changes do not affect CME's credit default 
swap clearing activities in any significant way. As such, the proposed 
rule change is properly filed under Section 19(b)(3)(A) \7\ and Rule 
19b-4(f)(4)(ii) \8\ thereunder because it effects a change in an 
existing service of a registered clearing agency that primarily affects 
the futures clearing operations of the clearing agency with respect to 
futures that are not security futures and does 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.
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    \7\ Supra note 3.
    \8\ Supra note 4.
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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.

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 was filed pursuant to Section 19(b)(3)(A) 
\9\ of the Act and paragraph (f)(4)(ii) of Rule 19b-4 \10\ became 
effective on August 12, 2011, the same date CME's corresponding filing 
with the CFTC became effective. At any time within sixty days of the 
filing of such 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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    \9\ Supra note 3.
    \10\ Supra note 4.
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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 may be submitted by using the 
Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml), or send an e-mail to [email protected]. Please include 
File No. SR-CME-2011-02 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-2011-02. This file 
number should be included on the subject line if e-mail 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. 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-2011-02 and should be 
submitted on or before September 21, 2011.

    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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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-22223 Filed 8-30-11; 8:45 am]
BILLING CODE 8011-01-P