[Federal Register Volume 79, Number 68 (Wednesday, April 9, 2014)]
[Notices]
[Pages 19683-19685]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-07883]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71853; File No. SR-CME-2014-11]


Self-Regulatory Organizations; Chicago Mercantile Exchange Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Regarding Clarifications to Its Chapter 7 Delivery Rules

April 3, 2014.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'' or ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on March 27, 2014, 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 
proposal pursuant to Section 19(b)(3)(A)(i) of the Act \3\ and Rule 
19b-4(f)(1) \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)(i).
    \4\ 17 CFR 240.19b-4(f)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CME is filing the proposed rule change that is limited to its 
business as a derivatives clearing organization. More specifically, the 
proposed rule change would clarify certain aspects of CME's Chapter 7 
rules with respect to deliveries of futures products.

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

[[Page 19684]]

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 DCO with the Commodity Futures Trading 
Commission (``CFTC'') and offers clearing services for many different 
futures and swaps products. The proposed rule change that is the 
subject of this filing is limited to its business as a DCO clearing 
futures contracts.
    Per existing CME Rule 702, CME guarantees financial performance 
(i.e., replacement cost) for all physically deliverable futures 
products. In assessing the current rulebook, CME noted that certain 
provisions in current Chapter 7 should be clarified to more clearly 
state CME's obligations in deliveries and delivery failures as the 
existing rule contains some language that may be seen as inconsistent 
with the overriding impact of CME Rule 702. As a result, CME is now 
proposing clarifying amendments to more clearly state CME's obligations 
for deliveries and delivery failures as specified below.
    The proposed amendments to CME Rules 730-732 and 742.A delete the 
operational mechanics of the currency delivery rules in light of the 
guaranty of financial performance per Rule 702 for deliveries.
    The proposed amendments to CME Rule 743.B clarify that the clearing 
member causing a currency delivery failure is liable to CME for any 
financial performance paid by CME to the contra-clearing member. The 
proposed amendments to CME Rule 743.A delete the reference to charging 
a clearing member overdraft fees for late or inaccurate deliveries.
    Finally, CME is proposing changes to CME Rule 702 to harmonize and 
more clearly state that CME is responsible for financial performance to 
the clearing member that did not cause or contribute to the delivery 
failure by strengthening the operative language (the current rule 
states that CME ``shall seek to ensure financial performance . . .''). 
``Financial performance'' is defined as payment of the commercially 
reasonable costs of the affected clearing member for replacing the 
failed delivery and includes any fines, penalties and fees incurred in 
replacing the delivery and does not include physical performance or 
legal fees. The changes further include a deadline for affected 
clearing members to seek a claim for financial performance and 
codification of the requirement to submit supporting documentation.
    The rule change that is described in this filing is limited to 
CME's business as a DCO clearing products under the exclusive 
jurisdiction of the CFTC and does not materially impact CME's security-
based swap clearing business in any way. The above listed change is a 
clarification to existing rules and does not result in changes to the 
operational processes or the nature or level of the risks posed to CME 
or clearing members. The change will be effective on filing and CME 
plans to operationalize it on March 27, 2014. CME notes that it has 
also certified the proposed rule change that is the subject of this 
filing to its primary regulator, the CFTC, in a separate filing, CME 
Submission No. 14-077.
    CME believes the proposed rule change is consistent with the 
requirements of the Exchange Act including Section 17A.\5\ The proposed 
change is intended to clarify existing CME obligations for deliveries 
in a manner consistent with CFTC Regulation 39.14(g), which requires 
DCOs to state their obligations with respect to deliveries, including 
obligations to make or accept deliveries. The proposed change simply 
clarifies existing practices by revising current rules to more clearly 
state that, in the event of a delivery failure, CME's obligations will 
be for financial performance to the clearing member whose actions or 
omissions did not cause or contribute with respect to the delivery 
failure (the proposed change also clearly defines the term ``financial 
performance''). These clarifications to CME's existing delivery process 
rules will provide greater clarity to the marketplace regarding CME's 
obligations in the delivery process 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 change is limited in its effect to 
futures products currently offered under CME's authority to act as a 
DCO. These products are under the exclusive jurisdiction of the CFTC. 
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 the prompt and accurate 
clearance of transactions and protecting investors and the public 
interest.
    Because the proposed change is limited to making clarifications to 
more clearly state CME's obligations in the delivery process under 
already existing CME rules, the change is therefore consistent with the 
requirements of Section 17A of the Exchange Act \7\ and is properly 
filed under Section 19(b)(3)(A) \8\ and Rule 19b-4(f)(1) \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)(1).
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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 change 
clarifies existing CME practices and simply states that in the event of 
a delivery failure, CME's obligations will be for financial performance 
to the clearing member whose actions or omissions did not cause or 
contribute with respect to the delivery failure and defines financial 
performance to be payment of the commercially reasonable costs of the 
affected clearing member for replacing the failed delivery and includes 
any fines, penalties and fees incurred in replacing the delivery and 
does not include physical performance or legal fees.

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)(1) \11\ thereunder, as 
CME has designated that this rule change constitutes a stated policy, 
practice, or interpretation with respect to the meaning, 
administration, or enforcement of an existing rule, which renders the 
proposed rule change

[[Page 19685]]

effective upon filing. 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)(1).
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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-2014-11 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-2014-11. 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 
10:00 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-2014-11 and 
should be submitted on or before April 30, 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. 2014-07883 Filed 4-8-14; 8:45 am]
BILLING CODE 8011-01-P