[Federal Register Volume 76, Number 211 (Tuesday, November 1, 2011)]
[Notices]
[Pages 67514-67515]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-28209]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65636; File No. SR-CME-2011-14]


Self-Regulatory Organizations; Chicago Mercantile Exchange, Inc.; 
Notice of Filing and Order Granting Accelerated Approval of Proposed 
Rule Change To Amend the Performance Bond Regime Applicable to Certain 
Cleared Only OTC FX Swaps

October 26, 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 October 18, 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 certain rules related to its existing Cleared 
OTC US Dollar/Chilean Peso (``USD/CLP'') foreign currency (``FX'') 
contracts. The USD/CLP FX contracts are comprised of spot, forward and 
swap transactions, and are also referred to as non-deliverable forwards 
(``NDFs''). The proposed rule changes would change the performance bond 
regime that applies to CME's USD/CLP NDF from a ``collateralization 
mark-to-market'' to a ``cash mark-to-market'' performance bond method.
    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

    CME currently offers USD/CLP NDFs as a cleared-only product. These 
USD/CLP NDFs feature a ``collateralization mark to market'' performance 
bond regime. CME desires to adopt a new performance bond regime that 
applies to the USD/CLP NDF product. The new requirements would instead 
feature a ``cash mark to market'' performance bond method. This change 
is intended to bring the USD/CLP NDF product in line with CME's 
anticipated launch of a suite of new OTC FX cleared-only currency pairs 
(which will be included as part of a separate regulatory filing.\3\) 
These new products will collectively feature the ``cash mark to 
market'' methodology when they are eventually offered for clearing, 
with the first in a phased roll-out of the new FX pairs to be offered 
currently planned for October 31, 2011.
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    \3\ See Exchange Act Release No. 34-65637 (Oct. 26, 2011).
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    CME Clearing has deployed the SPAN margining system to establish 
performance bond or ``margin'' requirements for OTC USD/CLP NDFs. 
Initial performance bond requirements are established at levels that 
are consistent with observed levels of volatility in the particular 
currency pairing and generally aligned with initial margin levels 
applied to current CME FX futures and option contracts, where 
applicable, which is not the current case with the cleared OTC CLP/CLP 
products, where there is no USD/CLP futures contract. These risk 
components of the clearing system are unchanged with implementation of 
``cash mark to market'' rather than ``collateralization mark to 
market''. However, it should be noted that the administration of the 
new margin regime will require a daily mark-to-market on a cash basis, 
similar to traded FX futures. Variation margins may be satisfied with 
the posting of appropriate amounts of collateral, where CME Clearing 
collects and pays in cash between the counterparties each day.
    CME Clearing will accept as collateral cash or any other 
instruments currently designated as approved collateral for posting for 
performance bonds. In order to calculate variation requirements, 
settlement prices are established for each contract and for each 
delivery date referencing data collected from a variety of market 
sources.
    Pursuant to Commodity Futures Trading Commission (``CFTC'') 
regulations, the changes in the applicable performance bond regime have 
been interpreted by CME as being subject to CFTC Regulation 40.6(d), 
requiring a self certification filing to the CFTC, although no change 
to text of the CME rulebook is required. As such, the changes that are 
the subject of this filing and that are necessary to establish the new 
``cash mark to market'' performance bond regime are changes to CME 
operational procedures only. CME notes that it has already certified 
the proposed changes that are the subject of this filing to its primary 
regulator, the CFTC.
    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 
the 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 the CEA with respect to clearing are comparable to 
a number of the policies underlying the

[[Page 67515]]

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]. Please include 
File No. SR-CME-2011-14 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-2011-14. 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-2011-14 and should be 
submitted on or before November 22, 2011.

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 products 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 foreign currency contracts, 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 for accelerating approval 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 foreign currency contracts 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.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) \7\ of the 
Act, that the proposed rule change (SR-CME-2011-14) is approved on an 
accelerated basis.
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    \7\ 15 U.S.C. 78s(b)(2).
    \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. 2011-28209 Filed 10-31-11; 8:45 am]
BILLING CODE 8011-01-P