[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