[Federal Register Volume 79, Number 50 (Friday, March 14, 2014)]
[Notices]
[Pages 14556-14558]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-05593]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71670; File No. SR-CME-2014-06]


Self-Regulatory Organizations; Chicago Mercantile Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rules Changes 
Regarding Implementation of Rules To Address Third Party Swap Execution 
Platforms

March 10, 2014.
    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 February 28, 2014, Chicago Mercantile Exchange Inc. (``CME'') 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)(iii) of the Act \3\ and Rule 19b-
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)(iii).
    \4\ 17 CFR 240.19b-4(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 proposed rules changes that address issues relating 
to third party swap execution platforms. The proposed rules generally 
clarify the time at which the rules of the CME Clearing House 
(``Clearing House'') apply, confirm the authority of the Clearing House 
to conduct risk management in conformance with its obligations under 
applicable regulations, and ensure that the Clearing House has 
sufficient flexibility to perform default management as required by 
applicable regulations. In addition, the proposed rules ensure that 
voids and price adjustments cannot occur after clearing without 
Clearing House consent, stipulate that Execution Platforms connected to 
the Clearing House comply with regulatory obligations, and require 
position transfers to comply with the Clearing House rules. Further, 
the proposed rule clarifies that it does not apply to security-based 
swaps. The proposed rules are limited to CME's business as a 
derivatives clearing organization clearing swaps under the jurisdiction 
of the Commodity Futures Trading Commission (``CFTC'').

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. The purpose of 
these proposed rule changes is to address issues relating to third 
party swap execution platforms. Although these changes will be 
effective on filing, CME plans to operationalize the proposed changes 
on February 28, 2014.
    Proposed Rule 815 is designed to address the risks posed to the 
Clearing House by third party execution platforms for swaps. The 
proposed rules: Clarify the time at which the rules of the Clearing 
House apply; confirm the authority of the Clearing House to conduct 
risk management in conformance with its obligations under CFTC 
Regulation 39.13; and ensure that the Clearing House has sufficient 
flexibility to perform default management as required under CFTC 
Regulations 39.16 and 39.27(b)(4). Proposed Rule 815 also explains that 
all third party execution platforms (``Execution Platforms'') that 
submit, or have submitted on their behalf, swap trades for clearing to 
the Clearing House, are bound by the Clearing House Rules. CME notes 
that the Clearing House also separately negotiated provisions in its 
commercial agreements with third party execution platforms for swaps 
which stipulate that the Clearing House rules apply once a trade has 
been submitted for clearing. In addition, the Execution Platforms all 
contractually agreed to be bound by the Clearing House rules applicable 
to the clearing services provided to them by the Clearing House.
    Proposed Rule 815 specifically confirms that the Clearing House 
rules apply once a trade has been submitted for clearing and that the 
Clearing House has the sole authority, where circumstances permit, to: 
Accept or reject trades, block or cancel trades, block or terminate 
connections with Execution Platforms, determine whether it will accept 
trade transaction counterparty risk and determine whether contracts are 
economically equivalent. In addition, the proposed rules ensure that 
voids and price adjustments cannot occur after clearing without 
Clearing House consent, stipulate that Execution Platforms connected to 
the Clearing House comply with regulatory obligations, and require 
position transfers to comply with the Clearing House rules. The 
proposed rules are intended to avoid the possibility of unacceptable 
ambiguities regarding the clearing and risk management of swap 
positions and prevent the actions of third parties from limiting or 
interfering with the ability of the Clearing House to perform prudent 
risk management and comply with its regulatory obligations. The 
proposed

[[Page 14557]]

rule does not apply to security-based swaps.
    CFTC Regulations require DCOs like the Clearing House to implement 
an enforceable legal framework to address the default of a clearing 
member, including but not limited to, the unimpeded ability to 
liquidate collateral and close out or transfer positions in a timely 
manner. The Clearing House believes that Execution Platforms may 
provide the necessary liquidity pools in the future which may assist it 
in closing out positions in a timely manner. As such, the Clearing 
House determined that it was important to implement a binding rule 
providing it with the ability to access the swap liquidity available at 
Execution Platforms. As noted above, Execution Platforms agreed to be 
bound by the Clearing House rules in their commercial arrangements with 
the Clearing House which, in conjunction with these rules, enhances the 
legal framework under which the Clearing House manages default risks.
    The 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 changes that are the subject of this filing to its 
primary regulator, the CFTC, in CME Submission 14-060.
    CME believes the proposed rule changes are consistent with the 
requirements of the Exchange Act including Section 17A of the Exchange 
Act.\5\ The proposed rule changes are generally designed to: Address 
risks posed by third party execution platforms for swaps by clarifying 
the time at which the rules of the Clearing House apply; confirm the 
authority of the Clearing House to conduct risk management in 
conformance with its regulatory obligations; and ensure that the 
Clearing House has sufficient flexibility to perform default 
management. In addition, the proposed rules ensure that voids and price 
adjustments cannot occur after clearing without Clearing House consent, 
stipulate that Execution Platforms connected to the Clearing House 
comply with regulatory obligations, and require position transfers to 
comply with the Clearing House rules. Further, the proposed rule 
clarifies that it does not apply to security-based swaps. These 
purposes 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. These products 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 
products 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 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 proposed rule changes 
address potential risks posed to the Clearing House by third party 
execution platforms. The proposed rules clarify the time at which the 
rules of the Clearing House apply; confirm the authority of the 
Clearing House to conduct risk management in conformance with its 
regulatory obligations; and ensure that the Clearing House has 
sufficient flexibility to perform default management. In addition, the 
proposed rules ensure that voids and price adjustments cannot occur 
after clearing without Clearing House consent, stipulate that Execution 
Platforms connected to the Clearing House comply with regulatory 
obligations, and require position transfers to comply with the Clearing 
House rules. Further, the proposed rule clarifies that it does not 
apply to security-based swaps. These purposes do not act as a restraint 
on competition but rather are prudent measures in line with the 
Clearing House's regulatory risk management obligations.

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 pursuant to Section 
19(b)(3)(A) \10\ of the Act and Rule 19b-4(f)(4)(ii) \11\ 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.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(4)(ii).
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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

[[Page 14558]]

     Send an email to [email protected]. Please include File 
No. SR-CME-2014-06 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-CME-2014-06. 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 or 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-2014-06 
and should be submitted on or before April 4, 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. 2014-05593 Filed 3-13-14; 8:45 am]
BILLING CODE 8011-01-P