[Federal Register Volume 79, Number 236 (Tuesday, December 9, 2014)]
[Notices]
[Pages 73122-73124]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-28770]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73729; File No. SR-CME-2014-13]


Self-Regulatory Organizations; Chicago Mercantile Exchange Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to the Application of Excess Defaulting Clearing Member Assets 
in Crossover Default Scenarios and the Harmonization of Defaulted Base 
Clearing Member Collateral Definitions

December 3, 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 November 26, 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 240.19b4(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 are limited to its 
business as a derivatives clearing organization. More specifically, the 
proposed rule changes would make amendments to CME Rules relating to 
the application of excess defaulting clearing member assets in 
crossover default scenarios and the harmonization of Defaulted Base 
Clearing Member Collateral definitions.

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 (``CFTC'') and operates a 
substantial business clearing futures and swaps contracts subject to 
the jurisdiction of the CFTC. CME is proposing new rules to specify the 
allocation of excess collateral of a defaulted clearing member to 
losses relating to products in other financial safeguards at CME pro 
rata based on the remaining loss in each of such product classes. 
Additionally, CME is proposing to amend CME Rule 802.A to harmonize the 
member collateral definition across the default rules. CME notes that 
it has also made a corresponding filing with the CFTC, in Submission 
No. 14-097R, regarding the proposed changes.
    The proposed changes to CME Rules 802.D, 8G802.D and 8H802.D would 
specify the allocation of excess collateral of a defaulted clearing 
member for a particular financial safeguard package to losses relating 
to product classes subject to other financial safeguards at CME. CME 
employs three financial safeguard packages (i.e. waterfalls) for each 
of the following product classes: interest rate swap products 
(``IRS''); credit default swap products (``CDS''); and Base products 
(which are all products other than IRS and CDS). The default rules for 
each respective waterfall contain the ability, once the loss of the 
clearing member for that waterfall is entirely satisfied, to use excess 
house assets of the clearing member towards satisfying uncovered losses 
of such clearing member for products in other waterfalls. For example, 
if a member was clearing IRS and Base products and excess Base 
collateral remained after completely satisfying all losses for Base 
Products, the rules provide that such excess may be used towards any 
uncovered losses of that clearing member for IRS products.
    CME rules are currently silent on the allocation mechanism of such 
excess funds to unresolved losses in other product classes where losses 
remain in both of the other product classes. The proposed new CME Rules 
802.D.1, 8G802.D.1, and 8H802.D.1 would specify that any such excess is 
allocated to the other safeguard packages pro rata based on the 
remaining loss in each of such product classes.
    Additionally, CME is proposing to amend CME Rule 802.A.2 to 
harmonize

[[Page 73123]]

the clearing member house collateral definition across the default 
rules.
    CME believes the proposed rule changes are consistent with the 
requirements of the Exchange Act including Section 17A.\5\ The proposed 
changes for the allocation of excess funds comport with CFTC Regulation 
39.16(c)(2)(iv) by adding clarifying language to specify the sequence 
in which excess house funds of the defaulting clearing member for a 
product class will be used to satisfy uncovered losses for other 
product classes. In addition, changes are proposed that would harmonize 
the defaulted clearing member definition and clarify the defaulted 
member's assets held by the clearing house that may be used to satisfy 
losses due to the clearing member's default. Because these changes 
clarify CME's existing default rules and procedures, they 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 CME or for which it is responsible, 
and, in general, to protect investors and the public interest in a way 
that is 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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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 changes 
simply specify the allocation of excess collateral of a defaulted 
clearing member to losses relating to products in other financial 
safeguards at CME pro rata based on the remaining loss in each of such 
product classes and, additionally, harmonize the member collateral 
definition across the default rules.

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

    CME Inc. has filed the proposed rule change pursuant to Section 
19(b)(3)(A) \7\ of the Act and paragraph (f)(4)(ii) of Rule 19b-4 \8\ 
thereunder.
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(4)(ii).
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    CME asserts that this proposal constitutes 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 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, which 
renders the proposed change effective upon filing. CME believes that 
the proposal does not significantly affect any securities clearing 
operations of CME because CME recently filed a proposed rule change 
that clarified that CME has decided not to clear security-based swaps, 
except in a very limited set of circumstances. \9\ The rule filing 
reflecting CME's decision not to clear security-based swaps removed any 
ambiguity concerning CME's ability or intent to perform the functions 
of a clearing agency with respect to security-based swaps. Therefore, 
this proposal will not have an effect on any securities clearing 
operations of CME.
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    \9\ See Securities Exchange Act Release No. 34-73615 (Nov. 17, 
2014), 79 FR 69545 (Nov. 21, 2014) (SR-CME-2014-49). The only 
exception is with regards to Restructuring European Single Name CDS 
Contracts created following the occurrence of a Restructuring Credit 
Event in respect of an iTraxx Component Transaction. The clearing of 
Restructuring European Single Name CDS Contracts will be a necessary 
byproduct after such time that CME begins clearing iTraxx Europe 
index CDS.
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    At any time within 60 days of the filing of the proposed 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 Securities Exchange Act of 1934. 
If the Commission takes such action, the Commission shall institute 
proceedings under Section 19(b)(2)(B) \10\ of the Act to determine 
whether the proposed rule change should be approved or disapproved.
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    \10\ 15 U.S.C. 78s(b)(2)(B).
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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-2014-13 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-2014-13. 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, 100F 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-2014-13 and 
should be submitted on or before December 30, 2014.


[[Page 73124]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-28770 Filed 12-8-14; 8:45 am]
BILLING CODE 8011-01-P