[Federal Register Volume 79, Number 236 (Tuesday, December 9, 2014)]
[Notices]
[Pages 73120-73122]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-28769]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73728; File No. SR-CME-2014-52]


Self-Regulatory Organizations; Chicago Mercantile Exchange Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to CME Rules 818, 8G01 and 8H01

December 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 November 24, 2014, Chicago Mercantile Exchange 
Inc. (``CME'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as 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 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).
    \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 a proposed rule change that is limited to its 
business as a derivatives clearing organization (``DCO''). More 
specifically, the proposed rule change contains amendments to clarify 
that netting will occur separately for each of the proprietary 
accounts, futures customer accounts, and clearing swap customer 
accounts of each Clearing Member at the time of close-out.

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 DCO with the Commodity Futures Trading 
Commission (``CFTC'') and offers clearing services for many different 
futures and swaps products. The proposed rule changes that are the 
subject of this filing are limited to CME's business as a DCO offering 
clearing services for CFTC-regulated swaps products. More specifically, 
the proposed rule change would adopt amendments to CME Rule 818.C 
(Netting and Offset) and CME Rules 8G01 and 8H01 to clarify that 
netting will occur separately for each of the proprietary accounts, 
futures customer accounts, and clearing swap customer

[[Page 73121]]

accounts of each Clearing Member at the time of close-out.
    CME Rule 818.C provides for the master netting agreement that 
applies in the event of a CME Bankruptcy Event (as defined in Rule 818) 
or default (as described in Rule 818). The proposed amendments clarify 
that netting will occur separately for each of the proprietary 
accounts, futures customer accounts, and clearing swap customer 
accounts of each Clearing Member at the time of close-out. The proposed 
amendments add sub-clauses to clarify that the relevant account classes 
will be closed out separately consistent with applicable CFTC 
Regulations and Sec.  4d of the Commodity Exchange Act (``CEA''). 
Clearing Member's proprietary, futures customer, and cleared swaps 
customer account classes will be closed out separately from one 
another, and cleared swaps customers will be closed out on an 
individual customer basis. Further, the proposed amendments add a 
provision clarifying that in the event of a Bankruptcy Event that is 
preceded by (or occurs simultaneously with) a limited recourse event in 
Interest Rate Swaps (``IRS'') and Credit Default Swaps (``CDS''), the 
amount of any variation margin haircut that is applied as a result of 
the limited recourse Rules (CME Rule 8G802.B for IRS and CME Rule 
8H802.B for CDS) will not be available for netting with losses from 
products subject to other financial safeguards under Rule 818.C.
    CME is also amending Rules 8G01 and 8H01 to further clarify that 
Rule 818 (Close-Out Netting) will apply for all products in the event 
of a CME Bankruptcy Event or default and will not be superseded by the 
conflict of rules provisions of Rules 8G01 and 8H01, respectively.
    The changes that are described in this filing are limited to CME's 
business as a DCO clearing products under the exclusive jurisdiction of 
the CFTC and CME has made a decision not to clear security-based 
swaps.\5\ The changes will be effective on filing. CME notes that it 
has also certified the proposed rule changes that are the subject of 
this filing to its primary regulator, the CFTC, in a separate filing, 
CME Submission No. 14-477. The text of the CME proposed rule amendments 
is attached, with additions underlined and deletions in strikethrough.
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    \5\ See Securities Exchange Act Release No. 34-73615 (Nov. 17, 
2014), 79 FR 69545 (Nov. 21, 2014) (SR-CME-2014-49). Pursuant to a 
teleconference with CME's in-house counsel on December 1, 2014, 
staff in the Division of Trading and Markets has edited this 
sentence to clarify CME's intentions not to clear security-based 
swaps except for a very limited set of circumstances described in 
the above-referenced proposed rule change.
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    CME believes the proposed rule changes are consistent with the 
requirements of the Exchange Act including Section 17A of the Exchange 
Act.\6\ CME is proposing the amendments to clarify that netting will 
occur separately for each of the proprietary accounts, futures customer 
accounts, and clearing swap customer accounts of each Clearing Member 
at the time of close-out. These proposed amendments will solidify CME's 
legal netting procedures framework (which applies in the event of a CME 
insolvency) which should be seen to be in accordance with the objective 
of promoting 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.\7\
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    \6\ 15 U.S.C. 78q-1.
    \7\ 15 U.S.C. 78q-1(b)(3)(F).
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    Furthermore, the proposed changes are limited in their effect to 
products offered under CME's authority to act as a DCO. The products 
that are the subject of this filing are under the exclusive 
jurisdiction of the CFTC. As such, the proposed CME changes are limited 
to CME's activities as a DCO clearing swaps that are not security-based 
swaps, futures that are not security futures and forwards that are not 
security forwards. 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 
products offered under CME's authority to act as a DCO, 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, swaps that are not security-based swaps or mixed 
swaps; and forwards that are not security forwards; 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 \8\ and are properly filed under 
Section 19(b)(3)(A) \9\ and Rule 19b-4(f)(4)(ii) \10\ thereunder.
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    \8\ 15 U.S.C. 78q-1.
    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 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 amendments 
simply clarify and solidify CME's legal netting procedures framework. 
Further, the changes are limited to CME's derivatives clearing business 
and CME has made a decision not to clear security-based swaps and 
therefore would not impose any burden on competition that is 
inappropriate in furtherance of the purposes of the Act.\11\
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    \11\ See supra note 5.
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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) \12\ of the Act and Rule 19b-4(f)(4)(ii) \13\ 
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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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 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:

[[Page 73122]]

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-2014-52 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-2014-52. 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-2014-52 and 
should be submitted on or before December 30, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-28769 Filed 12-8-14; 8:45 am]
BILLING CODE 8011-01-P