[Federal Register Volume 79, Number 42 (Tuesday, March 4, 2014)]
[Notices]
[Pages 12252-12254]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-04683]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71615; File No. SR-CME-2014-04]


Self-Regulatory Organizations; Chicago Mercantile Exchange Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Allow the LSOC With Excess Model for CFTC-Regulated Swaps

February 26, 2014.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on February 12, 2014, Chicago Mercantile Exchange 
Inc. (``CME'' or the ``Exchange'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change described 
in Items I, II, and III below, which Items have been prepared primarily 
by CME. CME filed the proposal pursuant to Section 19(b)(3)(A) of the 
Act,\3\ and Rule 4(f)(4)(ii).\4\ thereunder so that the proposal was 
effective upon filing with the Commission. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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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-44(f)(4)(ii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CME is filing a proposed rule change that is limited to its 
business as a derivatives clearing organization. More specifically, the 
proposed rule change would make amendments to its rules that would 
offer FCMs and their cleared swaps customers the option to transmit 
collateral specifically attributed to a cleared swap customer under an 
``LSOC with excess'' model.

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

    CME is registered as a derivatives clearing organization with the 
Commodity Futures Trading Commission and currently offers clearing 
services for many different futures and swaps products. With this 
filing, CME proposes to add new rules to permit futures commission 
merchants (``FCMs'') to transmit collateral of cleared swaps customers 
to CME that is in excess of the CME requirement for such customers. The 
changes by their terms relate only to swaps and do not affect security-
based swaps and therefore will be effective on filing.
    On November 14, 2012, CME implemented the Legally Segregated 
Operationally Commingled (``LSOC'') regime for the protection of 
Cleared Swap Customers in accordance with Part 22 of the Commodity 
Futures Trading Commission's (``CFTC'') Regulations. At that time, LSOC 
was implemented in a ``no excess'' mode, that is, any collateral value 
deposited by an FCM with a derivatives clearing organization (``DCO'') 
in excess of the aggregate client minimum performance bond margin 
requirement, to the extent it is not been explicitly identified by the 
FCM as being provided by the firm, would be treated as unallocated 
cleared swap customer value without attribution to a specific cleared 
swaps customer. In this ``no excess'' model, the LSOC value for each 
cleared swaps customer is presumed to be its performance bond 
requirement at the last settlement cycle and any collateral on deposit 
at the DCO in excess of such requirement aggregate of the customer

[[Page 12253]]

initial margin requirements, is not used by the DCO for any purpose 
after an FCM default.
    The proposed rule changes that are the subject of this filing offer 
FCMs and their cleared swaps customers the option to transmit 
collateral specifically attributed to a cleared swap customer under an 
``LSOC with excess'' model. These changes are part of a coordinated 
futures industry effort. CFTC Regulation 22.13(c) provides requirements 
for FCMs to transmit such excess. Specifically, Regulation 22.13(c) 
states that:

    (c) A futures commission merchant may transmit to a derivatives 
clearing organization any collateral posted by a Cleared Swaps 
Customer in excess of the amount required by the derivatives 
clearing organization if:
    (1) the rules of the derivatives clearing organization expressly 
permit the futures commission merchant to transmit collateral in 
excess of the amount required by the derivatives clearing 
organization; and (2) the derivatives clearing organization provides 
a mechanism by which the futures commission merchant is able to, and 
maintains rules pursuant to which the futures commission merchant is 
required to, identify each Business Day, for each Cleared Swaps 
Customer, the amount of collateral posted in excess of the amount 
required by the derivatives clearing organization.

    Accordingly, CME is proposing CME Rules 821, 8G821, and 8H821 which 
would expressly permit FCMs to transmit excess cleared swap customer 
collateral to CME and would require that they identify each Business 
Day, for each cleared swaps customer, the value of performance bond 
posted in excess of the amount required for such cleared swaps 
customer. Under the rules, FCMs will not be required to transmit excess 
collateral to CME by adoption of this rule but will be given the option 
to do so. Additionally, FCMs currently operating in the ``no excess'' 
mode will be allowed to continue in such mode. The proposed rules 
changes do not apply to security-based swaps positions.
    The proposed changes that are described in this filing are limited 
to CME's business as a derivatives clearing organization clearing 
products under the exclusive jurisdiction of the Commodity Futures 
Trading Commission (``CFTC'') and do not materially impact CME's 
security-based swap clearing business in any way. CME notes that it has 
already submitted the proposed rule change that is the subject of this 
filing to the CFTC.
    CME believes the proposed rule change is consistent with the 
requirements of the Exchange Act including Section 17A of the Exchange 
Act.\5\ The proposed rule change permits futures commission merchants 
(``FCMs'') to transmit collateral of cleared swaps customers to CME 
that is in excess of the CME requirement for such customer and as such 
are designed to promote the prompt and accurate clearance and 
settlement of securities transactions and, to the extent applicable, 
derivatives agreements, contracts, and transactions, to assure the 
safeguarding of securities and funds which are in the custody or 
control of the clearing agency or for which it is responsible, and, in 
general, to protect investors and the public interest consistent with 
Section 17A(b)(3)(F) of the Exchange Act.\6\
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    \5\ 15 U.S.C. 78q-1.
    \6\ 15 U.S.C. 78q-1(b)(3)(F).
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    Furthermore, the proposed changes are limited in their effect to 
swaps products offered under CME's authority to act as a derivatives 
clearing organization. Swaps are under the exclusive jurisdiction of 
the CFTC. As such, the proposed CME changes are limited to CME's 
activities as a derivatives clearing organization clearing swaps that 
are not security-based swaps; CME notes that the policies of the CFTC 
with respect to administering the Commodity Exchange Act 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.
    Because the proposed changes are limited in their effect to swaps 
offered under CME's authority to act as a derivatives clearing 
organization, the proposed changes are properly classified as effecting 
a change in an existing service of CME that:
    (a) Primarily affects the clearing operations of CME with respect 
to products that are not securities, including futures that are not 
security futures, and swaps that are not security-based swaps or mixed 
swaps; and
    (b) does not significantly affect any securities clearing 
operations of CME or any rights or obligations of CME with respect to 
securities clearing or persons using such securities-clearing service.
    As such, the proposed changes are therefore consistent with the 
requirements of Section 17A of the Exchange Act \7\ and are properly 
filed under Section 19(b)(3)(A) \8\ and Rule 19b-4(f)(4)(ii) \9\ 
thereunder.
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    \7\ 15 U.S.C. 78q-1.
    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(4)(ii).
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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. The rule changes simply 
permit futures commission merchants (``FCMs'') to transmit collateral 
of cleared swaps customers to CME that is in excess of the CME 
requirement for such customer.

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 has become effective upon filing pursuant 
to Section 19(b)(3)(A) \10\ of the Act and paragraph (f)(2) of Rule 
19b-4 thereunder. At any time within 60 days of the filing of the 
proposed 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.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 15 U.S.C. 78s(b)(3)(C).
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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

     Use 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-2014-04 on the subject line.

Paper Comments:

     Send paper comments 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-2014-04. This file 
number should be included on the subject line if email is used. To help 
the

[[Page 12254]]

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 10:00 a.m. and 
3:00 p.m. Copies of such filing also will be available for inspection 
and copying at the principal office of CME and on CME's Web site at 
http://www.cmegroup.com/market-regulation/rule-filings.html.
    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-2014-04 
and should be submitted on or before March 25, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-04683 Filed 3-3-14; 8:45 am]
BILLING CODE 8011-01-P